The property market in May 2025: Supply crunch fuels house price recovery

Despite tough economic headwinds, South Africa’s residential property market is slowly finding its feet again, with house prices starting to edge upwards.

This is according to the latest FNB Property Barometer for May 2025.  The report indicates that the FNB House Price Index (HPI) rose by 2.6% year-on-year, up from a revised 2.4% in April, marking the highest annual growth rate recorded in nearly two years.

But what’s driving this uptick, and what does it mean for buyers, sellers, and investors?

Prices are rising, but it’s not because of buyer demand 

The 2.6% HPI growth reflects a modest but meaningful improvement, particularly within the middle-to-upper-priced segments, which showed stronger activity. In the lower-priced segments, price growth remained stable, reinforcing the view that recovery is segment-specific. 

It is noteworthy that the current growth cycle is not demand-driven. Instead, the key force behind rising prices is a notable contraction in housing supply.

Year-to-date, the volume of newly built homes is down by 14%, following declines of 7.4% in 2024 and a dramatic 25.9% in 2023. This ongoing slowdown in new stock is a major factor propping up prices, as available listings diminish.

The FNB Market Strength Index (MSI), which gauges the balance between demand and supply, sits at 51.5, indicating slightly stronger conditions—but the improvement is largely due to sellers exiting the market, not an influx of enthusiastic buyers.

The state of the rental market

While home prices are recovering, the rental market continues to lag. Stats SA data reveals rental inflation of just 2.9% in Q1 2025—barely changed from the previous quarter. Moreover, vacancy rates for flats have ticked up to 6.7%, up from 6.0% in Q4 2024. This points to persistently weak rental demand, particularly in Gauteng metros such as Johannesburg and Pretoria.

That said, private sector rental data (such as PayProp’s Rental Index) shows stronger trends, suggesting that higher-value rentals in sought-after areas may be faring better. According to their data, average national rental growth reached 5.6% in Q1, the strongest quarterly increase since Q3 2017, pushing the average rent to R9 132. Growth peaked in February, which saw a year-on-year increase of 6%, the highest monthly growth recorded since August 2017.

You can read more about the PayProp Rental Index here 

Interest rate relief could be just around the corner

The macroeconomic environment remains a drag on overall property momentum. South Africa’s GDP forecast for 2025 has been revised down to just 1.1%, from earlier projections of 1.9%. Structural challenges, policy uncertainty, and underperforming investment activity are all contributing factors.

However, there is some light at the end of the tunnel.

FNB economists anticipate a 25 basis point repo rate cut by September 2025, which would bring the rate down to 7.0%, its lowest point in the current cycle. This would offer some welcome relief for homebuyers, especially in the low- to mid-market segments, by improving affordability and lending conditions.

If the South African Reserve Bank (SARB) lowers its inflation target to 3%, it might prompt a more conservative stance on future rate cuts. It is therefore imperative that prospective buyers and current homeowners keep their eyes on the news to financially prepare accordingly. 

What does this mean for the market? 

Overall, the latest data suggests that South Africa’s property market is gradually stabilising, with clear signs of upside potential. For sellers in the mid- to upper-price brackets, limited stock on the market could work in their favour, potentially driving stronger offers.

Buyers, on the other hand, might want to act sooner rather than later, either before interest rates shift again or while prices remain relatively affordable. If you're considering buying, it’s wise to get prequalified and use a bond originator to compare home loan offers and secure the best possible interest rate.

For property investors, a more cautious approach is recommended. While price growth is picking up, the recovery remains uneven, and rental yields are still under pressure in many areas. Vacancy rates, especially in some urban markets, remain relatively high, so it’s crucial to do your homework and understand the dynamics of the specific area you're targeting.

South Africa’s housing market isn’t roaring back, but it’s no longer in retreat either. While economic constraints and weak labour conditions continue to weigh on demand, the persistent lack of new housing supply is placing upward pressure on prices, especially in better-performing suburbs and price brackets.

As always, local market conditions will vary, but for now, the balance appears to be tipping cautiously toward recovery.

Need help navigating the current market? Whether you're buying, selling, or investing, understanding the nuances of your area is more important than ever. Reach out to a property professional who can guide you based on the latest trends.