By Siphamandla Mkhwanazi & Koketso Mano.
Signs of recovery amid changing buyer and investor trends
The latest FNB House Price Index (HPI) accelerated to 1.2% y/y in January, from 1.1% in December (revised from 0.9%) (Figure 1). While still subdued, this marks the highest growth rate since June 2023, reflecting a gradual market recovery. The upward trend suggests improving buyer sentiment, supported by easing financial pressures and evolving lending conditions.
Shifting consumer behaviour and mortgage lending trends
Mortgage lending conditions have shown a modest improvement, with the average loan-to-value (LTV) ratio, derived from Deeds data, rising to 95.1% in 4Q24 (from 95.0% in 3Q24 and 94.7% in 2Q24). This signals cautious optimism among lenders and buyers, as banks gradually loosen lending standards in response to an improving economic backdrop.
The 4Q24 FNB Estate Agents Survey highlighted notable shifts in first-time buyer behaviour:
Long term Fundamental view
Growing interest in Buy-to-Let investments
Investor activity is also picking up, with the incidence of buy-to-let purchases increasing from 8% to 12% of market activity, according to the 4Q24 FNB Estate Agents Survey (Figure 3). The Affordable segment is driving much of this activity, where 30% of purchases are now for investment purposes. This trend reflects households with stronger balance sheets seeking alternative investment opportunities in a stabilising property market. The increased demand for rental properties, particularly in affordable housing, suggests that investors anticipate better rental yields and sustained tenant demand in this segment.
Outlook
The rising presence of both first-time buyers and buy-to-let investors in lower-priced segments underscores strong affordability-driven demand and improving confidence in property as an investment class. If wage growth continues to outpace inflation (for example, as suggested by BankservAfrica Take-home Pay Index1) and interest rates decline further, housing demand—both for ownership and rental purposes—should strengthen. We project the FNB HPI to climb towards 1.7% in 2025, with a gradual acceleration to exceed 3% by 2026, as market fundamentals continue to improve.
The BankservAfrica Take-home Pay Index (BTPI), which tracks the average take-home pay of approximately 4 million salary earners in South Africa, grew by 9.7% average in real terms in the three months to January 2025
ADDENDUM - NOTES:
Note on The FNB House Price Index:
The FNB Repeat Sales House Price Index has been one of our repertoire of national house price indices for some years, and is based on the well-known Case-Shiller methodology which is used to compile the Standard & Poor's Case-Shiller Home Price Indices in the United States.
This "repeat sales approach" is based on measuring the rate of change in the prices of individual houses between 2 points in time, based on when the individual homes are transacted. This means that each house price in any month's sample is compared with its own previous transaction value. The various price inflation rates of individual homes are then utilized to compile the average price inflation rate of the index over time.
The index is compiled from FNB's own valuations database, thus based on the residential properties financed by FNB.
We apply certain "filters" and cut-offs to eliminate "outliers" in the data. They main ones are as follows:
Long term Fundamental view
Note on the FNB Valuers' Market Strength Index:
When an FNB valuer values a property, he/she is required to provide a rating of demand as well as supply for property in the specific area. The demand and supply rating categories are a simple "good (100)", "average (50)", and "weak (0)". From all of these ratings we compile an aggregate demand and an aggregate supply rating, which are expressed on a scale of 0 to 100. After aggregating the individual demand and supply ratings, we subtract the aggregate supply rating from the demand rating, add 100 to the difference, and divide by 2, so that the FNB Valuers' Residential Market Strength Index is also depicted on a scale of 0 to 100 with 50 being the point where supply and demand are equal.
