Turn coming for property in South Africa: Standard Bank

The South African residential property market has faced significant challenges over the last two years, but lower interest rates should boost it. 

Standard Bank said that the residential property market has faced significant headwinds over the year, which has led to a slump in home loan applications.

"As interest rates climbed to cool off inflation, the home loans sector experienced a sharp decline, echoing the cautious sentiment of buyers and creating muted growth across the real estate landscape," said Standard Bank.

"However, amidst this challenging climate, our Standard Bank house view offers a glimmer of optimism - we anticipate that the projected rate will lead to a more robust recovery." 

Standard Bank's data shows a contrast between the home loan market of 2020 and 2021, post covid, and the present. 

The market registered an average of R14 billion in monthly home loans in 2019. This would rise to roughly R20 billion per month in 2021 and 2022. This was driven by eager first-time buyers who wanted to capitalise on relatively stable housing prices and low interest rates.

The group's home loan registrations significantly exceeded the pre-pandemic level since the second half of 2020. 

"The period was marked by affordable homeownership opportunities, particularly in inland areas like Johannesburg and Pretoria, where property price growth was restrained, registering just a 3.6% increase in Gauteng for the year up to November 2022," said the group. 

The situation has changed significantly, with the South African Reserve Bank (SARB) hiking the repo rate to a 15-year high of 8.25% to combat inflation, which tempered the market. 

The shift resulted in a massive drop in home loan applications since last year, with the market registering an average of R14 billion in home loans a month in 2023, continuing into 2024 with further muted levels. 

The decline is linked to fewer application volumes due to affordability constraints and low consumer confidence levels. 

Tide is turning 

"Despite this downturn, Standard Bank maintains a cautiously optimistic economic outlook. Our modest 1% growth in the lending book for the first half of 2024 was in no way indicative of a shift in our risk appetite," said Standard Bank.

"Contrary, we maintained a steady risk appetite to ensure ongoing support for aspirant homeowners, reminiscent of our stance during previous crises, such as the global financial crisis and the COVID-19 pandemic, where we continued to write more home loans when the broader industry took a cautious stance."

The group expects the SARB to cut interest rates by 25 basis points in September and November. Its economists expect two further cuts in the first half of 2025.

Standard Bank is not alone in this expectation. Many economists now expect the first cut in September after two of the six members of the SARB's Monetary Policy Committee voted to cut rates by 25 basis points in July.

Inflation also dropped from 5.1% in June to 4.6% in July - only a percentage point above the SARB's target midpoint of 4.5%, giving the SARB scope to cut rates.

"This imminent cut should rejuvenate buyer confidence and stimulate a rebound in loan applications," said Standard Bank. 

"Another reason to be optimistic is to look at the long-term trends. Historically, the residential property market has always shown resilience and recovery after significant downturns."

"Our political landscape stabilised quicker than many expected post-elections with the government of national unity. Coupled with our currency's performance of late, there is potential for renewed economic stability, which may boost consumer confidence."

"Given the fundamentals, one can reasonably expect a rebound in our residential property market in the medium to long term."