South Africa’s housing market remains resilient amid mounting affordability pressures, but a shortage of completed homes could be the next challenge.
Interest rates have increased, while rising fuel costs are putting further pressure on household budgets and consumers’ ability to take on new debt. Yet BetterBond’s October Property Brief shows that rising buyer incomes, a resilient lending environment and an increase in building plans are helping to cushion the impact of tighter monetary conditions, says Stephan Potgieter, CEO of BetterHome Group Mortgage Origination and BetterBond.
“The concern now is constrained supply, as new homes are being completed more slowly than building plans are being approved.”
Positive impact of earlier interest rate cuts
Although the recent shift in monetary policy has created renewed uncertainty for homebuyers, says Potgieter, the positive outcome of earlier rate cuts before May have done enough to support a more favourable lending environment.
BetterBond’s October Property Brief reports a 2.4% quarter-on-quarter increase in home loan application volumes, while average monthly applications for the first three quarters of the year were broadly in line with 2025. “All provinces, except for North West, have reported improved ratios in the granting of home loans over the past 12 months. This is largely attributable to the banks’ strong financial position and the fact that the increase in homebuyers’ income is happening faster than the recent increase in deposit requirements,” says Dr Roelof Botha, Economic Advisor to BetterBond Home Loans.
Interestingly, the value of residential building plans passed during the first seven months of 2026 increased by 8.4% year-on-year. More significantly, the composition of those plans is changing, with sectional title building plans increasing by 21% year-on-year. “This confirms a more upbeat environment for residential growth,” notes Botha. “The market is adapting to changing affordability and buyer preferences.”
Why house prices are still rising
While the property market remains robust, the gap between the value of building plans passed and structures actually completed in the metros and large municipalities continues to widen, according to Property Brief data. The completion ratio to plans passed dropped by 12% year-on-year between January and July this year. “This slowing pace of new residential buildings is likely to continue placing upward pressure on house prices, even as higher interest rates and a subdued economy weigh on demand,” explains Botha.
The geographic picture is also noteworthy. During the first seven months of 2026, the Western Cape remained the leading province in terms of the value of houses and flats completed, at R6.2 billion, narrowly ahead of Gauteng at R6 billion, which recorded an annual increase of 3.2%. Together with KwaZulu-Natal, these three provinces accounted for 88% of the total R16.2 billion value of residential buildings completed during the period. Mpumalanga was the only other province to record year-on-year growth.
House price inflation
“The positive impact of the lowering of the prime lending rate after September 2024 can still be seen in the double-digit average nominal house price growth for buyers between the ages of 31 and 40, and those aged 51 to 60,” says Botha. For the latter age cohort, the real house price growth rate of 11.4% – well above current inflation of 4.4% – has resulted in an average house price of R2.2 million.
House price growth has now started to exceed inflation by a notable margin. Average house prices for all buyers increased by 1.8% in real terms during the third quarter, with buyers now spending an average of R1.7 million on a home. First-time buyers experienced an even stronger rate of price growth, with prices increasing by 8.4% year-on-year. “House price inflation is being driven by increased demand, with the slow pace of residential project completions contributing to upward pressure on prices,” says Potgieter.
Fortunately, the construction sector is showing some sign of recovery. As noted in the Property Brief, the Afrimat Construction Index increased by an impressive 5% quarter-on-quarter in real terms during the second quarter of 2026, significantly outperforming Gross Domestic Product. Construction employment also increased by 95 000 over the 12 months to June 2026. “If this trend continues, it could translate into expanded residential development which would help close the gap between housing demand and homes completed,” says Potgieter.
Creating opportunities
What does bode well, however, is the steady increase in income among homebuyers. The average monthly homebuyer income reached R74 000 in the third quarter, reflecting a real average annual increase of 4.7% over the past five years. For first-time buyers, the improvement has been particularly pronounced, with average income increasing by 13.4% year-on-year. “This has helped to offset some of the pressure being created by higher lending rates and increased deposit requirements,” says Botha.
The latest rate-hiking period has seen banks adjusting their deposit requirements as expectations around interest rates have shifted. Since September last year, deposit requirements have moved up and down several times. By the end of the third quarter, the average deposit requirement for all buyers was 21.7% higher than a year earlier. For first-time buyers, however, the increase was a more manageable 5.6% year-on-year. “This comparatively smaller increase makes building the savings required for a bond deposit a bit more manageable. In this way, banks are helping to enable new buyers to enter the property market despite higher lending rates,” notes Potgieter.
Sensitivity to price shifts
The latest interest rate increase is not the only pressure facing household budgets. Rising fuel costs add to affordability concerns, potentially leaving many with less money to save for deposits and homeowners with tighter budgets that may make bond repayments more onerous.
The October Property Brief notes that the recent increase in consumer inflation has been driven by supply-side factors. It also points to the potential for inflation to ease if global fuel cargo shipments normalise, which could create room for interest rates to shift downwards again. For prospective homeowners, this makes the outlook particularly sensitive to shifts in both inflation and interest rates. “Any sustained improvement in these areas would provide additional support for affordability and buyer activity,” says Potgieter.
Emerging supply challenges
Overall, home loan application volumes have stabilised despite shifting lending conditions. Buyer incomes continue to rise, helping to mitigate the impact of higher deposits and borrowing costs, while house prices are increasing faster than inflation. At the same time, however, the slower pace of completed residential construction remains a concern.
The recovery in construction provides some encouragement. So too does the strength of the banking sector. Total bank assets reached a record R9.21 trillion at the end of the second quarter, with annual growth accelerating to 8.1% on average since the rate-cutting cycle began, notes Botha in the Property Brief. Furthermore, lower interest rates earlier this year and moderating inflation have also supported improved activity in various areas, including home loans, according to the September 2026 PwC Banking Report.
“For now, improved incomes and an appetite for lending are keeping buyers in the market. A cut in the prime lending rate before the end of the year would go a long way to improving affordability and stimulating buyer activity – particularly among first-time buyers – into 2027,” concludes Potgieter. “It may well be that supply, and not buyer demand, will be the housing market’s challenge over the next few months.”