The average house purchase price in South Africa has for the first time exceeded R1.6 million, a dramatic rise from R150 000 in 1994, says alternative home financier Sentinel Homes.

The trend of escalating house prices will continue because it is currently more expensive to build new stock than to trade in old stock, says Renier Kriek, managing director at the company.

“Obviously, the higher the demand for old stock, the steeper the price increases and the less affordable houses will become for most South Africans,” Kriek said.

Earlier this year Absa Home Loans told Independent Media Property that its average property valuation amount was R1.6 million in 2024.

Sentinel Homes said over the past 70 years, property prices have been decoupled from salary growth, in SA and abroad. It said the value of property is increasing faster than the rate of wage increases. This explains why the average house price (measured in multiples of salary) used to be so much lower than today, it said.

Kriek said while this is beneficial for those who own property, it makes it expensive for those wanting to purchase, especially first-time buyers. Meanwhile, home financiers enjoy reduced risk, as houses that are financed today will be worth more on average in the future, he said.

We previously reported that using the BankservAfrica Take-Home Pay Index (BTPI) sample based on data released in January, the take-home pay of only 15.8% of single salary earners would be sufficient to afford a property of R1.3m in value. Independent economist Elize Kruger said this number will almost double to 30% if two salaries are added together in order to buy a property.

According to the calculations of an estate agent, for a salary earner to afford a property of R1.3m in value, with a repayment of R13 480 per month over 20 years, based on the prime rate of 11%, the gross income per month of such a salaried person must be R40 000. Assuming an effective tax rate of 23.1% (for an annual income of R480K), that translates into a net salary/take-home pay (After income tax) of about R30 000.

Sentinel Homes said this trend has several anticipated effects. “We will likely continue to see reducing property sizes, which means smaller even and increasing numbers of micro-apartments. Developers will also continually increase the amenities included in new estates and sectional schemes, to differentiate the smaller newly built apartments and houses and increase their desirability and competitiveness. Think padel courts, coffee shops, childcare centres, and restaurants,” it said.

The MD said despite this, SA’s residential property market has started to recover after an incredibly difficult year. “In 2024, typical for pre-election uncertainty, people held off large capital acquisitions such as buying a house,” Kriek said.

The financier said potential property buyers and sellers had expected the cutting cycles to begin earlier in the year, and to be much steeper than the 0.25% increments delivered in September 2024, followed by 0.25% in November 2024. Although the SA Reserve Bank cut the repo rate by another 25 basis points (from 7.75% to 7.50%) in January 2025, Kriek says this still is not enough.

Ideally, the rate should be a further 100 to 150 basis points lower to reduce borrowing costs and stimulate the whole of the economy and boost job creation, but which would also benefit the real estate market.

Encouragingly, Kriek said the interest rate cuts combined with the formation of the country’s Government of National Unity (GNU) last year have boosted consumer confidence to a five-year high. A Lightstone survey of estate agents revealed hopes for a much improved 2025, with 86% of respondents expecting to reach their sales targets, compared to only 73% in 2024.

“The residential real estate market is influenced by emotion in addition to economics and therefore has a more intensely cyclical pattern than if it were strictly governed by logic,” Kriek said. Life changes happen independently from economic downturns: people want smaller or bigger homes as they get married, start a family, or their grown-up children fly the nest. “These life cycles continue unabated, and the only logical conclusion is that there’s pent-up demand building in the system in times of lower volumes,” he says.

The desire for property transactions is always there but during tough economic times, people wait until the market receives positive signals. When that happens-as it has now-all the pent-up demand is released and the residential property cycle swings very suddenly in the opposite direction. As a result, home loan application activity rose by 16.2% year-on-year in December 2024, according to bond originator Ooba.

Giving its outlook, the company said growing geopolitical and local uncertainty makes it nearly impossible to predict whether the current real estate market upswing will carry on or only experience a shallow peak. Risks generally build up in the background and can have a sudden or disproportionate effect on the market, Kriek said. “Take the Expropriation Act, which may be trivial from a strictly legal perspective, but symbolically it’s a big issue that might prevent future investments in SA property.”

He predicts that either the economy will start growing and strengthen the property upswing, or it will reset suddenly to a much more conservative position, where lending is less likely, constricting the property market. “It’s either going to get much better or suddenly worse from here, but I'm eternally optimistic about South Africa,” Kriek said.

John Loos, Senior Economist at FNB Commercial Property Finance said while they foresee mild growth in building activity in 2025, supported by an improved economy and lower interest rates, the environment remains challenging. He said cost management will be critical to ensure the affordability and sustainability of new residential developments.