At the start of 2024 I always consider different market sectors, and how they’ll perform.
South Africa’s property market, listed and real property, is one of my favourite sectors – so it enjoys a fair bit of my attention.
So – what does property market hold for 2024? And what will be the drivers behind its trends?
Which areas of South Africa’s property market will perform in 2024?
Traditionally SA’s three large cities, Cape Town, Johannesburg and Durban have been the economic powerhouses, and main drivers behind growth in the property market.
This remains mostly true. The northern suburbs of Johannesburg, Midrand and Waterfall City are high in demand. Cape Town and surrounding suburbs also continues to attract domestic and international buyers. Durban is the exception to the rule –
But since the Covid pandemic there’s been a trend of more home buyers in peri-urban areas outside of large cities, but close enough for comfort. Work from home has also made many people re-evaluate the city life for the more tranquil life in outlying areas.
The FNB Property Barometer puts the Eastern Cape (Nelson Mandela Bay Metro) as the top province in 2023 – with more than 6% house price growth, the Western Cape is just below 6%, with KZN coming in around the 1% mark and Gauteng was just barely positive.
Based on this chart from FNB – it is clear the semigration trend is strong and continuing as well.
Interest rates will be the main factor behind property prices in 2024
Low interest rates were behind a 5.48% national increase in property prices in 2021, with a 4.18% increase in 2022. 2023 slowed down to 3% as interest rates skyrocketed.
67.5% of loan applications in 2020 were for 100% loans, but this dropped to 54.1% in 2023.
This has likely dropped because the number of first time home buyers have decreased in 2023 – because of affordability issues due to rising interest rates.
I believe it is safe to say that interest rates are at the top of the cycle, or definitely very close to it. And considering that, affordability issues will ease in 2024 – and we should see a modest improvement in demand from first time home buyers. And that will support property prices, especially at the lower end of the market.
So – considering this, early 2024 is probably a good time to look for good buys on South Africa’s property market. Especially buy-to-let property.
South Africa’s property rental market is hot
Affordability of property is a problem for many young people – with current interest rates they’d need significant deposits to buy property. And as such there’s huge demand for rental property.
The biggest demand is for apartments and townhouses in sectional title schemes. These properties saw a bit of a drop in demand during the pandemic, but the trend is now firmly reversing and sectional title property prices will surely outperform freehold prices in 2024.
In Late 2023 for instance 28% of all property purchase applications were driven by investors. And the Western Cape is central to this trend.
The combination of semigration, excellent service delivery and favourable climate has led to a substantial increase in the number of tenants seeking rental properties. In particular, the City Bowl, Atlantic Seaboard and Southern Suburbs have become highly sought-after areas, resulting in fierce competition for rental properties. As a result, Cape Town has experienced healthy rental escalations. Currently, the vacancy rate is just 3.62%, the lowest it has been since the start of the pandemic.
If you consider these trends – it is safe to say that rental property in the Western Cape is an attractive option in 2024. I would stick to newer properties, as I also believe that green buildings and energy efficient designs will become more important to tenants, and as owners for lower costs.
On the other hand, the break down of service delivery in areas like KZN, the Free State and other rural provinces mean you should steer clear of these markets to protect your capital.
And if you’re not a fan of physical assets, check out my Red Hot Penny Shares service for my top listed property companies to consider right now.
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