Key factors influencing the property market in 2025

Key factors influencing the property market in 2025

For most of us, the dream is to own our own home, and considering property has long been regarded as a good investment on the basis that it's a tangible asset that generally appreciates over time, it makes good financial sense but there are factors to take into consideration before taking the plunge.

Having a place to call your own and financing your own investment rather than your landlord's is appealing on numerous levels. Likewise, the satisfaction of owning an investment property.

And, when chosen wisely, a property can yield significant returns, either by rising in value or generating rental income. Additionally, it can be an effective hedge against inflation, providing security even in uncertain economic climates.

However, real estate is not a minor investment and it's also a major financial commitment, so the decision to purchase property is not one to be taken lightly, especially as the market can fluctuate due to numerous factors, including general economic conditions, interest rates and global factors.

If you're contemplating purchasing a home in 2025, you might be asking yourself: Is now the right time to buy?

The answer to this question depends on several key factors which potential buyers should carefully consider and ensure they understand before taking the leap:

Assess Your Personal Finances

Before diving into a property search, it's essential to take a close look at your financial situation because property is a long-term investment, and having a solid foundation in place will give you the confidence to make a sound decision.

It's also helpful if you obtain pre-approval from a bond originator like ooba as this will give you an idea of how much you can afford and also your chances of obtaining finance.

Deposit and Savings

Most banks require a deposit of around 10% to 20% of the home's value and, in addition to this, there are often other costs to consider, such as transfer duties, bond registration fees, and legal costs, which can add another 5% to 8% to the total price of your home.

If you don't have the savings to cover these costs, you might need to delay your purchase until you've built up a sufficient nest egg. Even though you can afford to buy, if you stretch yourself to the financial limit that leaves no wriggle room should anything unforeseen happen.

Debt and Credit Score

Your credit score plays a vital role in securing a bond and obtaining a competitive interest rate. If your credit score is less than ideal, you may want to focus on improving it before applying for a home loan.

Additionally, assess your debt-to-income ratio. Lenders typically prefer that your monthly debt repayments (including the bond) don't exceed 30% of your monthly income. If you're carrying high levels of debt, it might be wise to address that before committing to a property purchase.

Interest Rates in 2025

Interest rates are one of the most critical factors affecting your mortgage repayment amount. And in recent years, South Africa has seen significant fluctuations in with record lows followed by significant hikes when The South African Reserve Bank (SARB) raised rates in 2023 to curb inflation.

They are, however, currently on the decline again and, with continued political stability and relief from loadshedding, financial experts are expecting further drops in the repo rate as inflation stabilises which bodes well for those looking to invest in property in 2025.

Market Conditions

The South African property market is influenced by a mix of global economic factors and local dynamics, and, in recent years, the market has been under pressure due to slower economic growth, rising costs of living, and high interest rates and inflation. However, we seem to have turned a corner, and the investor sentiment is cautiously optimistic.

Supply and Demand

With semigration still steady, we are seeing a lack of sufficient housing supply to meet the growing demand, particularly in urban areas. This has led to notable price growth in some suburbs, placing them out of reach of many first-time buyers but there are still opportunities to buy in up-and-coming neighbourhoods where prices haven't yet peaked.

On the other hand, some areas have seen slower price growth or even a decline due to factors such as oversupply, socio-economic trends, or a decrease in demand so researching the local property market in the specific area you're interested in is crucial. Look for trends, talk to real estate agents, and even consider emerging locations that might offer more value for money.

Government Initiatives and Policy

Keep an eye on any policy changes, such as tax adjustments, land reform, or changes to property laws, as these can influence property values and purchasing conditions. Staying informed will help you make a more educated decision about whether the market is favourable for your particular needs.

Long-Term Investment Goals

One of the most significant reasons to buy a home is to build long-term wealth. Property in South Africa is typically viewed as a sound investment, particularly in prime areas with good growth potential. If you're considering buying a home, it's essential to think about the long-term value of your investment.

Capital Growth

If you're buying for investment purposes, focus on areas where you can expect long-term capital growth. While short-term fluctuations in the market can occur, property generally appreciates over time so look for areas with improving infrastructure, proximity to schools, transport links, and business hubs, as these factors tend to drive demand and increase property values.

Renting Out Your Property

Another option to consider in this year is the potential to rent out your property. Given the rental demand in many urban areas, particularly in major cities like Johannesburg and Pretoria, as well as declining interest rates, you could generate rental income while your property appreciates in value. This strategy can help offset your mortgage payments and make your home a more profitable investment in the long run.

Is Your Timing Right?

Last but certainly not least, consider your personal circumstances. Are you ready to commit to a home for the next five to ten years? The property market can be volatile in the short term, and selling your home too quickly after purchasing may not yield the return you're hoping for.

Also consider your job stability, family needs, and whether you'll be staying in the area for an extended period.

If you're uncertain about the timing, it may be worth waiting until you've built up more savings, have a clearer picture of interest rate trends, or see more favourable market conditions in the future.

Ultimately, the answer depends on your individual financial situation, long-term goals, and readiness to commit to the responsibilities of homeownership.

Take the time to assess your finances, consider the broader economic context, and ensure that your purchase aligns with your personal and financial goals. Whether you're a first-time homebuyer or looking to expand your property portfolio, making a well-thought-out decision today can set you up for success in the years to come.

Extract from Property24