By Koketso Mano & Siphamandla Mkhwanazi
Overview
The property market continues to reflect the tailwinds that have supported the cyclical recovery. Following the initial upswing led by first-time buyers in 2021 and subsequently reinforced by repeat buyers, the most recent phase has been driven by higher-income households benefitting from positive wealth effects. We expected this improvement in demand to broaden across the household sector so long as financial conditions remained supportive. However, this dynamic is increasingly being tested by evolving global risks, particularly the ongoing conflict in the Middle East, which has started to tighten financial conditions. Nevertheless, additional support factors may remain available to the residential property market.
In this report, we review a range of cyclical and structural indicators to assess why the recovery in the property market may remain intact, albeit at a more moderate pace, and how longer-term anchors could provide a solid foundation for sustained improvement in market outcomes. Overall, while resilience could persist in the near term, its durability will increasingly depend on the trajectory of inflation and interest rates.
HPI moderates further in April
In April, the house price index (HPI) recorded zero monthly growth and 5.4% year-on-year (y/y) growth, slightly softer than the 5.7% y/y recorded in the previous month. In the first two months of 1Q26, growth was 5.7% and 5.8%, respectively, and the average for the first four months of the year stands at 5.7%, comfortably above the expected average inflation rate of 3.4%. This trajectory is broadly in line with our expectations as we anticipated some moderation in price growth until mortgage volumes strengthened sufficiently to support a new phase of appreciation. Even so, price growth was firmer than expected at the start of the year. The key question now is how long this resilience can be sustained, given the elevated inflation risks and the likelihood that tighter financial conditions will weigh on real house price growth and soften demand. This is particularly relevant because the accelerated appreciation since 2H25 was more supported by constrained supply, while the expected new phase into 2027/28 would have been generated by a stronger recovery in demand.
Encouragingly, the April market strength indicators point to stable demand and softer supply, thereby supporting the overall strength index. This suggests that supply is being withdrawn faster than demand is easing, likely as some owners choose to withhold stock rather than sell into potentially weaker market conditions. Even so, our market strength indicator underscores that the interaction between both demand and supply will determine the extent to which the market deviates from our constructive baseline outlook.
Supply
Statistics South Africa's data on residential building plans passed by larger municipalities indicates that construction activity remains subdued relative to the early 2000s, which was the higher-growth period preceding the Global Financial Crisis. As expected, plans passed weakened through the 2010s before recovering later in that decade. However, that recovery was abruptly reversed by the Covid-19 shock, and the trend has yet to regain momentum, retaining a downward bias. This has been compounded by supply-chain disruptions that emerged during the pandemic, which have kept the construction materials index more than 50 index points above its level at the start of 2019, even though construction materials inflation has eased from a peak of nearly 18% in mid-2021 to 4.3% in March 2026. In addition, an improvement in sentiment toward the country has likely slowed emigration and supported foreign participation, further constraining stock, particularly in the higher-value segment of the market.
However, the aggregate data may obscure an important shift within the underlying trends. The 2022 Census estimates the average household size in South Africa at between three and four people, which is consistent with a growing preference for apartment and townhouse living. This is also reflected in the relatively stronger number of building plans passed in these categories. Consequently, while the broader market may still be supported by supply that has yet to recover meaningfully, there are likely to be pockets of stronger activity that will require equally robust demand to be sustained. In addition, ongoing structural reforms aimed at improving spatial integration and service delivery could create opportunities for increased investment in residential construction. For now, limited supply is likely to provide an effective floor for the market.
Demand
In earlier reports, we noted that affordability has improved through the real compression in house prices over the 2010s, alongside mortgage innovations such as longer loan terms, group applications, youth-focused interest-only products, and government support measures, all of which have helped narrow the affordability gap. We also observed that financial conditions remain central to the outlook, and that a lower inflation target together with a more accommodative monetary policy stance over the longer term could provide important anchors despite the current energy price shock. Interestingly, a closer look at inflation dynamics shows that rental inflation, one of the subcomponents of the Consumer Price Index that previously dragged the aggregate measure, has recently accelerated alongside the market recovery. As a result, and in line with shifting preferences, overall rental inflation recorded 4.0% in March, with inflation for apartment rentals at 5.1%. While several provinces are broadly aligned with the national rental inflation rate, Gauteng, the Northern Cape, and the Free State recorded slower inflation, whereas Mpumalanga and the Western Cape recorded faster inflation. Stronger rental growth may increasingly influence both location preferences and the relative cost considerations of renting versus buying.
Finally, while unemployment remains elevated and small businesses are likely to remain vulnerable to high input costs, this environment should improve as operating conditions become more supportive. As reforms unlock investment and growth, employment and household incomes are also likely to be strengthened. For now, greater policy certainty and multi-year negotiated wage increases in some sectors could outpace inflation and help preserve a measure of demand.
Conclusion
Economic conditions had shown resilience before the conflict in the Middle East altered the outlook for financial conditions and threatens to weaken some of the factors expected to support a continued recovery in the residential property market. Even so, the market enters this period from a relatively solid position. Demand may continue to be supported by improved confidence among foreign participants and higher-income households, while wage growth in selected sectors and continued funding innovation could still encourage broader home ownership. At the same time, a likely gradual recovery in supply and the continuation of structural reforms should help anchor the long-term outlook.
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:
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.
