Housing price growth rates in South Africa are slowing due to high borrowing costs

The increase in the cost of living is significantly impacting first-time home buyers in South Africa, changing perceptions of what it means to own a home.

A new approach to assessing housing affordability

François Viruli, Chief Economist at Datazone, argues that housing affordability can no longer be assessed simply by comparing house prices with household incomes. He emphasizes that the true cost of housing must account for expenses such as transport, electricity, municipal payments, water, and insurance, as well as other unavoidable living costs.

Viruli notes that when these costs rise simultaneously, households have less disposable income for housing, making both renting and buying property less affordable.

Inflation and transport costs

According to the June 2026 Consumer Price Index (CPI) published in South Africa, the rising cost of living is putting increasing pressure on households. Statistics South Africa (Stats SA) reports that the overall inflation rate reached 5.0% in June. Although this figure is within the South African Reserve Bank's target range (3%–6%), it continues to move towards the upper limit of this range.

In Viruli's view, the most alarming aspect of the June CPI is transport inflation. Transport prices rose by 12.7% over the year, becoming the largest driver of overall inflation. Fuel price increases were 34.3%, while passenger transport services increased by 12.5%.

Many low-income households spend almost as much on transport as they do on housing. Statistics South Africa estimates that many of these households already spend more than 20% of their income on public transport, while broader studies in South Africa show that for the poorest passengers, transport costs can range from 30% to 40% of total income.

Implications for the real estate market

Viruli concludes that transport has become an integral part of housing affordability, strengthening arguments for dense development, mixed-use neighborhoods, and locating housing closer to workplaces. Furthermore, the cost associated with housing is also rising: annual inflation for housing and utilities was 5.5%, adding 1.3 percentage points to overall inflation. Electricity, gas, and other fuel costs rose by 9.9%, while water and municipal service costs rose by 6.9%.

Despite relatively moderate rental inflation, the increase in utility costs continues to raise the overall cost of living. Of greatest concern is the sharp rise in administrative prices, which increased by 15.5% over the last year—more than three times the rate of overall inflation. Administrative prices include tariffs for electricity, water, waste removal, assessment taxes, and public transport fares, which are largely determined or regulated by the government.

The cumulative effect of rising transport costs, municipal tariffs, and utility charges is gradually reducing household purchasing power and weakening housing affordability. Higher living costs also restrict the amount people can borrow, thereby dampening housing demand even when interest rates fall.

Decline in young buyers

According to TransUnion, South African households continue to face financial pressure over the past year, with little sign of recovery. The proportion reporting better-than-expected finances has dropped to 43%, while the proportion in worse shape has risen to 40%.

Samuel Niburg, Head of Sales and Business Development, noted that statistics show young South Africans have stopped buying homes. He cites an example: in 2005, 108,000 people under 35 purchased property, compared to only 45,000 in 2025. This means more than half of the market for first-time buyers has disappeared in 20 years.

Breakdowns show that buyers under 30 have decreased from 58,600 to 21,300 (a drop of 64%), and buyers aged 31–35 from 49,000 to 24,200 (a drop of 51%). The share of buyers under 35 among all buyers fell from 44% to 30%. Meanwhile, youth make up 37% of the population but own only 7% of properties, whereas people over 50 make up 29% of the population but own 68% of properties.

Niburg states that wages and real incomes are not keeping pace with property prices. He also points out that tightening criteria and rising mortgage interest rates over time have pushed young people out of the market. To this has been added a significant decline in youth unemployment. Niburg questions who will stimulate the market in 10 years if an entire generation is excluded from the starting point. He adds that this phenomenon is not unique to South Africa but represents a global shift, although the causes may vary slightly depending on the region.

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.