South African real estate auction reaches record sale of 285.5 million rand

The South African property market is preparing for the July interest rate decision, presenting a two-speed market. While the broader residential sector faces pressure regarding real affordability, the rise in borrowing costs negatively affects financed buyers and consumers already grappling with the high cost of living.

Property Market Segments

Keegan Stein, founder of Forbes Global Properties in South Africa, notes that the pressure in the mass housing sector is real and cannot be underestimated. He emphasizes that the upper segment of the market functions differently: clients here are predominantly wealthy local and international buyers whose decisions are less dependent on the repo rate level in any given month, and more on the quality and rarity of the property.

According to Stein, these buyers are aware of the broader economic picture, but a minor change in the rate rarely dictates their decision to purchase exclusive real estate. Moreover, in some cases, periods of uncertainty are perceived by them as opportunities for acquisition.

Importance of Policy Predictability

For this latter group of buyers, the predictability of overall policy is more important than the direction of a single decision. Stein adds that high-net-worth buyers look at the long term, and what matters more for their conviction is confidence in the trajectory than a 25 basis point change in either direction. He believes the key question for the Reserve Bank is how the decision and the clarity of its justification shape trust in the luxury property market.

In May, the Monetary Policy Committee (MPC) raised interest rates by 25 basis points, bringing the repo rate to 7.00% and the lending rate to 10.50%.

Impact of Rate Hikes

An international network of exclusive real estate agencies reports that the May rate hike most strongly affected the mass residential market, where affordability and creditworthiness are closely linked to interest rates. This led to increased monthly payments and stricter requirements on the amount buyers can secure.

In the ultra-premium segment, the impact was much more limited. Demand for exceptional homes continues to be driven by scarcity, not credit. Although developers face rising financing and construction costs, affluent buyers remain active when a suitable opportunity arises. The company points out that value is key: even in the highest segment, where trophy homes on the Atlantic coast sell for approximately 170,000 Rand per square meter, the global buyer pays only a fraction compared to Monaco, London, or New York.

Challenges for South African Households

Meanwhile, Ezra Rasetehe, President and CEO of investRand, notes that the upcoming interest rate decision comes at a difficult time for South African households and the property market. He reports that annual consumer inflation rose from 4.5% in May to 5.0% in June, mainly driven by spending on transport, housing, utilities, and financial services.

This means that households are simultaneously facing rising living expenses and increased debt servicing costs following the May rate hike. According to investRand data, this has resulted in an immediate increase in monthly payments for homeowners and property investors with variable mortgages, and has also reduced the amount some potential buyers can qualify for, especially first-time homebuyers who were already in a tight price bracket.

Demand Remains, But Affordability is Limited

However, investRand adds that the impact is not uniform across the market. While higher borrowing costs may postpone some home purchases, the fundamental demand for affordable and well-located housing has not disappeared. Instead, some buyers are adjusting their expectations, looking at smaller units, sectional apartments, and more accessible areas.

Rasetehe argues that those who cannot yet afford homeownership will likely remain in the rental market longer. This supports demand for affordable rental housing, student accommodation, and well-managed apartment buildings in areas with sustained renter demand. The CEO emphasizes that the crucial point is that the market is not suffering from a lack of demand, but rather from affordability constraints.

He concludes that this puts pressure on buyers and developers, but also opens opportunities for disciplined investors focused on sustainable demand, realistic pricing, and stable cash flow. Rasetehe believes that ideally, the Monetary Policy Committee should keep the repo rate at 7.00% while maintaining a cautious stance. He explains that such a move would give SARB more time to assess the full effect of the 25 basis point hike in May without putting additional pressure on debtors, businesses, and property owners. He warns that changes in monetary policy take time to filter through the economy, and an immediate further hike could further weaken affordability and economic activity.

Despite this, investRand notes that due to inflation rising to 5.0%, as well as ongoing pressure on fuel prices and global supply chains, the possibility of another 25 basis point hike cannot be ruled out. The MPC must balance the need to control inflation and protect the rand against the risk of excessive pressure on an already constrained domestic economy.

A boom in land development is observed in South Africa, and investors, developers, institutions, and private buyers are striving to acquire vacant plots at current prices to secure future opportunities.

The Significance of Development Land

According to Greg Dart, director of The High Street Auction Co., well-located land is becoming extremely sought after. He notes that development land is one of the few asset types where value is created, rather than simply acquired. These plots represent a pure opportunity for forming new industrial parks, logistics centers, residential complexes, mixed-use zones, or commercial properties.

Greg Dart emphasizes: 'The most significant projects start with the right piece of land. The largest land deals start in the right market. An auction combines both these elements—it connects vision with possibility and turns potential into realized value.'

Infrastructure Development Initiatives

Meanwhile, Tuesday saw an announcement from the Development Bank of Southern Africa (DBSA). The bank reported that through support for the Free State University student accommodation program, 520 student places were provided in Bloemfontein and Qwaqwa with investments totaling 119.6 million rand. This initiative has contributed to expanding access to higher education and creating a favorable learning environment.

DBSA indicated that the positive impact extends beyond mere infrastructure: students save an average of 534 rand monthly on transport costs and recover about 8 hours and 40 minutes that would otherwise be spent commuting. Furthermore, safe, purpose-built housing contributes to improved academic performance, well-being, and overall student success. DBSA representatives stated: 'At DBSA, we invest in infrastructure that creates opportunities because Africa's prosperity starts with investing in people.'

Reasons for High Bids on Vacant Plots

In parallel, WMPB Land Surveyors published a post on LinkedIn on Wednesday explaining that municipalities often set higher rates on vacant plots due to a combination of financial, planning, and political reasons. Although the approach varies by municipality, the main motives include:

1. Stimulating development: Higher rates discourage owners from leaving serviced plots empty for long periods, as municipalities are interested in developing land for housing, business, or other productive uses that support economic growth.
2. Recouping infrastructure costs: Even if a plot remains vacant, the municipality may have already provided roads, water, sewage, stormwater, and electrical infrastructure, the maintenance of which helps cover costs through rates.
3. Reducing land speculation: High rates encourage owners to either develop the land or sell it to someone willing to do so, instead of holding it for years awaiting value appreciation.
4. Promoting efficient land use: Inaction on serviced urban plots can lead to urban sprawl, so encouraging infill development ensures better use of existing infrastructure.
5. Municipal revenue: Property rates are an important source of income for municipalities, used to fund services such as roads, parks, libraries, waste collection, and public safety.

According to WMPB Land Surveyors, in South Africa, the Municipal Rates Act 2004 (Act 6 of 2004) grants municipalities the right to establish various categories of rates (e.g., residential, commercial, agricultural, vacant) and charge different rates for each category while adhering to their Rates Policy and the Act. This allows municipalities to legally charge a higher fee for vacant land compared to developed land, provided it is justified in the adopted policy.

Owners' Rights to Contest Rates

The consulting firm added that owners have the right to contest increased rates on vacant plots if they believe their property has been misclassified or the rate is unjustified. To do this, they can review the municipality's annual Policy and Tariffs, check the property category in the municipal valuation roll, and lodge an objection during the roll objection period or appeal, if permitted.