By Koketso Mano & Siphamandla Mkhwanazi
Overview
The property market, like the broader South African (SA) market, remains resilient despite growing external pressures. A prolonged war in the Middle East has raised operating and living costs, prompting a measured response by the central bank. Meanwhile, the intervention by fiscal policy was also constrained by eroded buffers and the need for fiscal consolidation. Therefore, while financial conditions continue to find support in resilient export commodity prices; improved foreign sentiment towards SA; and lower real interest rates, affordability constraints have tilted upwards. This will result in activity being upheld by households with financial buffers, while vulnerability escalates for first-time and lower-income buyers.
In this report, we highlight the strength of our house price index (HPI) three months after the war began. We also take cues from our 2Q26 Estate Agent Survey to assess how sentiment and activity has evolved. Overall, we think the market will remain resilient, fanned by tailwinds, but affordability issues could increasingly generate downside risks. Over the longer run, a more productive SA economy and growing policy buffers should make the economy, and the property market, less vulnerable to external shocks.
HPI moderates in May
In May, the FNB HPI recorded robust annual growth of 5.6%, which was faster than headline inflation of 4.5% even as it slowed from 6.1% in March when the war began. The monthly momentum provides clearer evidence of a slowdown. Monthly HPI growth was marginal at 0.1% in May, down from 0.6% at the start of the year; 0.4% in March; and 0.2% in April. This trajectory affirms our view that a moderation in price growth would emerge until mortgage volumes strengthened sufficiently to support a new phase of appreciation. While upgrades to our price growth estimates have so far outweighed volume compression, we worry that an accelerated slowdown in volumes since the war will start to generate downside risk to our outlook.
The market strength indicators still point to relatively stable conditions. We had both demand and supply strength easing since March, but a stronger slowdown in demand strength has shifted the overall strength index slightly down. Therefore, while supply being withdrawn is upholding an effective floor in the market, a faster easing in demand could increasingly shift dynamics in favour of buyers. Even then, stricter lending conditions should continue to weigh on activity.
Estate agent satisfaction with market conditions eases amid affordability challenges
While estate agents are still generally satisfied with market conditions, the proportion has fallen from 77% in 1Q26 to 59% in 2Q26. In addition, while satisfaction rates eased across all the provinces, Kwa-Zulu Natal (KZN) recorded a material fall from 66% to 31% over the same period, suggesting idiosyncratic issues. Furthermore, satisfaction rates contracted the most in the lower-priced segments (below R2.6 million).
Estate agents still view activity as resilient and the time that properties spend on the market has slowed to ten weeks and six days (one week less than in 1Q26). However, the national activity rating has slowed from 6.34 over 4Q25 and 1Q26 to 6.02 in 2Q26. Most agents (56%) view activity in the market as stable, with a rating of between four and six out of ten, but there is a good proportion (33%) who would rate activity as positive (with a rating of between seven and eight). The Western Cape (WC) received the highest rating for activity, at 6.5 versus 6.1 previously, while the Eastern Cape's (EC) rating plummeted from 7.0 to 6.1. Gauteng's (GP) rating also slowed to 5.8 from 6.1, while KZN was stable at 6.1. Activity in the higher-price segments (above R2.6 million) and lowest-price segment (below R750 thousand) was resilient, but activity slowed materially in the segments in between. This aligns with our view that households with financial buffers who are more sensitive to policy credibility and less to financial conditions, could uphold activity in the market. This is while households looking to buy-down because of financial pressure will uphold activity in the lower end.
That said, and contrary to previous survey outcomes, most of the sellers in the lower end that are placing their properties on the market due to financial pressure are now opting to rent rather than buying a cheaper property. This speaks to both constrained affordability and more stringent lending criteria, which should dampen activity severely going forward. Affordability strains are also evident in the proportion of first-time buyers falling from 40% in 1Q26 to 32% in 2Q26, given how reliant these buyers are on mortgages as the main source of funding. This fits with the belief by agents that incomes have fallen far behind house prices. Just considering that past three months alone, house price appreciation remains robust while real disposable incomes have come under pressure. This, alongside the expected scarring on household prospects, should constrain volume growth even as some pockets of activity should sustain decent price growth. Most agents expect activity to be stable in the near term (57%), with an almost even split in the remainder of agents who think activity will decrease or increase. However, the proportion of agents who anticipate higher near-term activity has fallen from 55% in 1Q26 to 20%, while those who think activity will fall has lifted from 3% to 24%.
Conclusion
Despite mounting war-driven headwinds, SA markets have shown resilience. House price appreciation remains solid, but affordability is a growing constraint. Therefore, while agents remain satisfied with market conditions, particularly in the higher-priced segments, the activity of first-time and lower-income buyers is being restricted by tighter budgets and lending criteria. The long-term outlook for SA goes beyond fixing prevailing inefficiencies, it is about building a capable state, a productive economy, and resilient household finances. This will benefit both the lower- and higher-end of the residential property market.
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.
