South Africa’s property market is at a crossroads, grappling with systemic challenges that are deepening inequality and stifling economic growth.
High transaction costs, including transfer duties and registration fees, coupled with the prevalence of properties without title deeds, have driven a significant portion of property transactions into the informal sector.
This informal trading, while a workaround for low-income households, exacerbates the structural issues plaguing the market and underscores the urgent need for reform.
According to Chris Labuschagne, CEO of Home Structured Lending at FNB, the high costs associated with formal property transactions are pushing low-income households to trade properties informally. “Affordability remains a significant concern, especially for first-time home buyers facing higher borrowing costs,” Labuschagne notes.
While the high-end property market thrives, entry-level buyers are increasingly marginalised, highlighting a stark divide that calls for more accessible and affordable housing solutions. At present the market is reflection the broader socio-economic challenges of the country.
The challenges don’t end there. John Loos, senior economist at FNB Commercial Property Finance, points to the sharp rise in public sector-related operating costs, particularly municipal rates and utility tariffs, which have surged above inflation for years.
These escalating costs have placed immense pressure on property owners, forcing them to invest in alternative solutions such as backup electricity and water systems. “This has constrained property net operating income growth,” Loos explains, adding that inconsistent service delivery has further compounded the problem.
The ripple effects are felt across the economy. Households and businesses are relocating to areas with more reliable municipal services, creating disparities in property market performance across regions. This migration not only disrupts local economies but also widens the gap between well-serviced urban hubs and under-resourced towns.
The Residential Property Price Index (RPPI) for August 2024 reveals a modest 3.3% annual increase in national residential property prices, with the Western Cape leading at 6.5%. However, these figures mask the underlying issues. The growth in property prices, particularly in metropolitan areas like Cape Town, does not translate to broader affordability or accessibility.
Loos emphasises that a thriving property market requires robust economic growth. “By ‘performing,’ I refer not only to returns on existing properties but also to the expansion of new property stock,” he says.
South Africa’s rising urbanisation has intensified the demand for formal residential homes, yet the supply remains critically low. While subsidised housing initiatives exist, their impact is limited by financial constraints at all levels of government.