SEIZING OPPORTUNITIES IN A DYNAMIC MARKET
THE BIGGER PICTURE: ECONOMIC GROWTH AND ITS IMPACT
1. GDP and Unemployment: Key Drivers of Market Behaviour
South Africa’s economy, while facing numerous structural challenges, is showing glimmers of hope. According to the International Monetary Fund (IMF), the GDP is projected to grow by 1.5% in 2025. While this growth rate may seem modest, it signifies resilience in a global economy recovering from various disruptions, including post-pandemic slowdowns and geopolitical tensions.
GDP growth directly affects consumer spending power, employment rates, and the overall housing demand. For instance, a higher GDP often correlates with increased disposable income, enabling more people to afford home ownership or rental properties. However, South Africa’s high unemployment rate according to Statistics South Africa, currently hovering around 32.6%, continues to suppress some demand in the middle-income housing sector.
Watch our YouTube video, Does it Still Make Sense to Invest in Property in South Africa?
2. Inflation and Interest Rates: Key Drivers of Market Behaviour
Inflation, forecasted to stabilize at 4.5% in 2025, is a critical factor for investors to monitor. This is also according the International Monetary Fund (IMF). Historically, inflation erodes purchasing power, but when kept within a manageable range, it can stimulate economic activity by encouraging spending. The South African Reserve Bank’s monetary policy has successfully anchored inflation expectations, paving the way for potential interest rate reductions.
Currently, the prime lending rate in South Africa stands at 11%. High interest rates have dampened property price growth over the past two years. However, the expected rate cuts in 2025 could rejuvenate the market, making home loans more affordable. Lower rates will also reduce the financial burden on landlords with mortgages, improving overall profitability in the rental sector.
PROPERTY MARKET TRENDS: OPPORTUNITIES IN DIVERSITY
1. Property Price Growth
According to Lightstone’s Residential Property Index (end of November 2024), property price’s current annual capital growth is 3.3%, with the Western Cape performing the best and Northern Cape in second place.
The map below shows the latest provincial house price inflation status from Lightstone.
2. Urban vs. Coastal Property
Coastal properties, especially in regions like the Western Cape, remain highly sought-after. Not only do they attract foreign investment, but they also cater to the growing trend of remote work. With more professionals seeking lifestyle-centric living arrangements, properties in areas like Cape Town and Durban are experiencing steady price appreciation.
In contrast, urban properties in Gauteng and KwaZulu-Natal are seeing slower growth. However, these markets provide affordability, appealing to first-time buyers and investors targeting rental yields.
Lightstone says that coastal properties have performed better than non-coastal properties and freehold properties have performed better than sectional properties.
3. Affordable Housing
One of the most significant trends in the South African property market is the performance of affordable housing. Properties priced below R250,000 have outpaced all other segments in terms of capital growth. These properties, often located in emerging townships and secondary cities, offer investors the potential for high returns while addressing the country’s housing shortage.
As I’ve mentioned before, high-value properties aren’t always the best investments as Lightstone shows that properties valued at less than R250 000 have outperformed all other value bands for most of the last 10 years with over 10% annual capital growth per year for most of the time since 2018! Properties valued between R250 000 and R700 000 have come in second.
Watch our YouTube video, The Difference Between Capital Growth & Cash Flow Strategies in Property Investment.
THE RENTAL MARKET: A TALE OF RECOVERY
1. Tenant Stability and Good Standing
Being a landlord or property owner is a delight when tenants are in good standing and paying rent! TPN defines tenants who are in good standing as those who “have paid in full and on time, paid in the grace period or paid late”. They also say that an account is only in good standing when fully settled with no arrears.
The percentage of tenants in good standing, now at 83.34% according to TPN Residential Rental Monitor Q2 2024, has shown remarkable recovery since the pandemic’s early days. Provinces like the Western Cape have 88.43% of tenants paying on time. This stability is a promising sign for landlords, reducing the risks of rental income disruptions. Rental Value Bands like the R7,000 to R12,000 mark have 88.58% of tenants paying on time.
Rental Growth Trends
Rental escalations have kept pace with inflation, ensuring that landlords can maintain real returns. For example, PayProp’s Rental Index reveals that national rental growth rates are stabilising at 4.8%. Investors should note that the highest rental growth is observed in properties priced between R5,000 and R7,500 per month, catering to the middle-income bracket.
CONCLUSION
What does all this mean for your property investments? Here’s my perspective on the current market trends and outlook.
First, the property market remains in favour of buyers, with abundant supply and subdued demand creating opportunities to secure exceptional deals. For those ready to act, it’s an ideal time to find properties at attractive prices.
Second, the rental market is showing strong signs of recovery. Tenant payment reliability has improved, and rental escalations are picking up. With careful selection of the right properties, you can benefit from consistent rental income and growing property values.
Finally, property continues to stand out as one of the most rewarding investment options. The combination of capital appreciation and net rental yields offers significantly higher returns compared to other investment vehicles, including the Johannesburg Stock Exchange (JSE).
In short, now is a great time to explore the opportunities the property market has to offer.
Read our article, Don’t Mind Me… I’m Just Over Here Building My Empire.
You can also view the recording of our webinar held on the 28th of November 2024, Property Investment Trends and Analyses.
Read the entire article in the January/February 2025 Edition of Real Estate Investor Magazine.