• South African residential property prices are dropping when adjusted for inflation, a new FNB report shows.
  • FNB estimates that property price growth will continue to be stifled while there is an oversupply in the market. 
  • While overall real property prices declined, low-income and lower-to-middle-income properties showed above inflation growth. 
  • For more, go to Business Insider South Africa.

For a second year residential property prices in South Africa have dropped when corrected for inflation.

And the situation is only set to improve once oversupply in the market has been reduced. 

The FNB Property Barometer for June, released on Wednesday, showed that property prices increased by only 3.3% year-on-year in May, while South Africa’s latest consumer price index (CPI) inflation stood at 4.5%.

This means property prices declined by 1.2% in real terms. 

Also read: This is the share of South Africans who now own property

“We read [this] as a continuation of a downward adjustment [of property value growth] in line with subdued economic activity and lower disposable income levels,” FNB’s Siphamandla Mkhwanazi said.

FNB's House Price Index (HPI) adjusted for inflati
FNB's House Price Index (HPI) adjusted for inflation, compared to property value growth (supplied, FNB)

While political uncertainty before the elections has slightly lifted, which will improve sentiment, it will likely take longer before that filters through to economic activity such as property purchases, he said.

“For the residential property market, excess supply in the higher-end segments [also] must clear before we see an overall house price acceleration.” 

Also read: These are the South African cities where salaries are high and rents are low – relatively

While average real residential property prices are in decline, the barometer showed that low-income properties with an average purchase price of R395,000 saw a 16.3% price growth, well above inflation. 

The lower-middle income segment, with an average purchase price of R638,200, saw a 6.8% growth, growth of 2.3% above inflation. 

Property price growth per market segment (supplied
Property price growth per market segment (supplied, FNB)

The middle segment (4.2% growth) with an average purchase price of R935,000; the upper-income segment (3% growth) with an average purchase price of R1.3 million; and luxury value segment (0.8% growth) with average purchase price R2.3 million, all showed below-inflation growth. 

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