South Africa's homebuying activity declines in the second quarter of the year: what you need to know
Image: Kindel Media/Pexels
South Africa's homebuying activity during the second quarter of this year could not match the performance of the first quarter, according to the July 2025 BetterBond Property Brief.
This was despite a fairly active month in May, as well as a marginal decline in the prime lending rate.
Fortunately, however, the year-on-year(YOY) increase in the number of home loan applications did increase with the bonus of an increase that outpaced the rise in the latest consumer price index (CPI), namely 7.4% (CPI was at merely 2.8% at the end of May).
'The residential property market still has a long way to go before breaching the levels of activity experienced at the beginning of 2021-prior to the Monetary Policy Committee (MPC) embarking on a restrictive policy approach that saw the prime rate climb to a 15-year high,' says Bradd Bendall, BetterBond's International head of sales.
'The index for the 12 months ending in May 2025 is now 28% lower than four years ago. Fortunately, a measure of stability has returned to the residential property market, with the latest index reading 4.5% higher than two years ago.
"With the CPI remaining below the MPC's target range for inflation, there is an excellent chance for another rate cut at the end of July,' he said.
The brief showed that after reaching an all-time high of R1.3 million during the first quarter of this year, the average house price for first-time buyers (FTBs) declined marginally to R1.28 million in the second quarter.
It showed that the subdued level of activity in homebuying has manifested itself in YOY declines for all buyers and FTBs alike, both in nominal and real terms.
'During Q2 2025, the average house price for all buyers amounted to R1.58 million, confirming the continued presence of a buyer's market for houses, as do the declines of 6.4% and 8.3%, for real house prices for all buyers and FTBs, respectively, since Q1 2022.
"After this date, the relentless rise in interest rates started to bite into the pockets of prospective homeowners.
"With the debt service costs as a percentage of household income having moved rapidly from 6.7% in 2021 to 9.1% in 2024, the dampening effect on residential property market activity was no surprise. Fortunately, the latter has started to decline and is now at 8.9%.'
For the first half of last year, the brief showed that the average deposits required for home loan approvals reached a peak, but this trend has now been reversed, with a YOY decline of 17% for FTBs and 11% for all buyers having been recorded in the second quarter of this year.
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After moving to over R300 000 since the end of 2023, this value declined to an average of R272 000 during the second quarter. FTBs are said to have benefited even more, with a decline in the average deposit from just below R200 000 a year ago to R165 000 in this period.
'After a gradual increase until Q1 2024, the ratio of bank credit impairments to total bank assets has declined marginally to 2.5%. The deceleration in the growth of credit impairments at South African banks is a welcome development and confirms a high level of effective credit risk management.'
The regional composition of home loans granted showed a YOY increase of 13.6%. The reasons for this positive trend were the marginal interest rate relief, with the prime lending rate now at 10.75%, compared to 11.25% at the beginning of this year.
Bendall said that although criticism has been levelled against the monetary policy authorities for not lowering interest rates at a faster pace, any lowering immediately raises the affordability of home purchases, especially for FTBs.
'Another reason has been the declining trend of real home prices (after adjustment for inflation). Combined with sustained increases in real incomes of home loan applicants, this has also enhanced the attractiveness of buying a house. Johannesburg's South-Eastern suburbs came in at number one for loans granted,' Bendall said.
The Brief showed that over the 12 months from June last year to June this year, only two regions experienced a decline in the number of home loans granted. These were the Eastern Cape and Mpumalanga.
Two other regions that also underperformed relative to the rest of the regions and the national average increase of almost 14% were the North West and Johannesburg's North-Western suburbs.
Greater Pretoria fared exceptionally well, with an increase in the number of home loans granted of 26.7%, possibly because of being home to the largest residential University in the country and also a number of motor vehicle manufacturers, which have spawned a large and diversified component manufacturing supply chain, the brief said.
Predictably, it said the Western Cape continues to expand its home loan activity, with YOY growth of 14.7% for loans granted.
Bendall said the first four months of the year have revealed striking differences in the values of houses and flats that were built in South Africa's provinces, with a spread of 100 percentage points between the worst and best performers.
He said KwaZulu-Natal ruled the roost, with a YOY increase of 53.6%, whilst the Eastern Cape disappointed with a decline of 46.5%.
The Western Cape was second best, with an increase of 32%, which he said is not surprising, given the ongoing phenomenon known as semigration, mainly due to superior standards of public service delivery at the provincial and municipal level.
Building activity in Gauteng declined by 20% YOY, likely due to long-standing and serious deficiencies with basic service delivery, especially with water, electricity and roads.
The continued demise of capital formation, especially in the area of infrastructure, has also contributed to a decline in the Afrimat Construction Index in the first quarter of this year, which reflects the lethargy of building activity, says Dr Roelof Botha, an economist and advisor to the Optimum Investment Group and Currencies Direct.
'Unless interest rates start declining at a faster pace, South Africa will continue to experience sub-optimal economic growth, due to the excessively high cost of credit and capital,' Botha said.
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