Lower interest rates mean greater demand for homes – but is there enough to go around?
Published December 2024
While the 50 basis point drop in the prime lending rate since September 2024 has brought financial relief for homeowners, it could also lead to critical housing supply shortages if developers are unable to meet the growing demand, cautions Bradd Bendall, BetterBond’s National Head of Sales. “The noticeable decline in the number of properties being completed around the country is cause for concern, especially if interest rates continue to drop in 2025. A property shortage will ensue if demand cannot match supply.”
“Although BetterBond reported in August 2024 that there was an 18.9% quarter-on-quarter increase in the value of building plans passed and a 29.4% increase in loans granted for building purposes, this is still not enough to meet the expected spike in demand for homes now that interest rates have started to drop,” says Bendall. If the uptake in residential developments remains slow, housing supply shortages may in fact worsen in 2025, he added. “There was an overall decline of 13.6% in the value of residential buildings completed during the first eight months of 2024.” As noted in BetterBond’s November 2024 Property Brief, the total value of residential buildings completed during this time was R18.6 billion.
According to data from Stats SA, only 15,871 plans were passed for houses, townhouses and flats in the first half of 2024 compared to 19,746 in 2023. Most of the building activity was in Gauteng, where there is a preference for new houses and flats. This was followed by the Western Cape, where most of the new units were houses rather than flats. The greater demand for homes is evident in the reduced time properties are on the market, says Bendall. According to the FNB Property Barometer for October 2024, the impact is already being felt with properties staying on the market for an average of 11 weeks and two days, compared with the 12 weeks and two days seen earlier in the year.
BetterBond’s Property Brief for December 2024 shows that 43% of the houses and flats built thus far have been in Gauteng, followed by the Western Cape which accounts for 32% of new residential buildings. KwaZulu-Natal is next in line with 11% of new residential buildings for 2024. As these regions have large manufacturing industries with diversified value chains, there is a concentrated demand for property, explains Bendall. They are also home to the country’s largest metros and offer various educational opportunities that make these areas appealing to families seeking accommodation close to schools and universities.
“There are some signs of a positive shift to accelerated building activity,” says Bendall. “The Afrimat Construction Index (ACI) improved by almost 9% during the second quarter of 2024, as the value of wholesale sales of building materials grew by 9.2%.” There were also improvements in the volume of building materials produced and the value of retail hardware sales. However, although the values of building plans passed and of buildings completed recovered well quarter on quarter, the year-on-year changes in these two indicators are still in negative territory, says Bendall.
A housing supply shortage impacts aspirant homeowners who may have to pay more for their homes as the market becomes more competitive. “We could see house prices increase considerably in the coming months if interest rates continue to drop.” The increased demand for homes may also outprice buyers, forcing them to rent rather than buy, explains Bendall. “So while the lower interest rate is a welcome driver of activity in the housing market, it means little to buyers if there is not enough supply to meet demand.”
Bendall urges municipalities to work hard at approving building plans quickly to avoid delays. There also needs to be greater public-private sector collaboration to address the housing needs of the more than 19 million households in the country. “This would include better access to affordable housing options and improved financial support for property developers in all sectors of the market.”