New homebuying trend hits South Africa’s middle class as interest rates bite

Banking group FNB says the rising cost of living and high interest rates are forcing consumers to consider alternative ways of buying homes.

This has led to a rise in ‘group buying’, where groups of up to 12 people buy a home collectively.

FNB said that it has seen this type of homebuying setup increase by 36% on its loan books in the six months ending 31 December 2023 (versus the same period in 2022).

Mfundo Mabaso at FNB’s home and structured lending arm noted that the consumers most likely to enter into these kinds of setups earn a gross salary of between R3,500 and R29,600 per month, representing South Africa’s middle class.

This demographic have been hit hard by the tough economic environment in South Africa, he said, and are looking for affordable housing. Due to the rising cost of living and persistently high interest rates, they have to “cope” together.

Mabaso said that FNB’s internal data shows that the collective buying trend is most prevalent in Gauteng, closely followed by the Western Cape.

“Interestingly, while collective buying is popular in the affordable housing market, there is also a lot of uptake from affluent customers and families buying holiday houses and financing semigration homes,” he said.

Not going anywhere

South Africa’s interest rates have been stuck at a 15-year high for almost a full year, with the repo rate hitting 8.25% in May 2023.

This is the highest point since May 2009, when the rate was at 8.5%.

While there were early hopes in 2024 that a cutting cycle would hit around March – without around 100 basis points expected to be cut by the end of the year – this outlook has since been dashed, with the most optimistic view being that 50 basis points will be cut in the final two meetings of the year.

However, it is also becoming more likely that there will be no interest rate cuts for 2024, with several economists and finance groups only pencilling in a start to the cutting cycle in 2025.

The main drive behind rates remaining higher for longer is sticky inflation – which has not yet been able to sustain at the South African Reserve Bank’s target point of 4.5% – as well as a more hawkish viewpoint from major international central banks, particularly the US Fed.

The Reserve Bank has maintained that it will not adjust South Africa’s monetary policy until it is confident that inflation is under control.

The SARB’s next meeting will be held on 30 May, after the national election, and current projections are for another hold on rates.

According to Mabaso, as higher interest rates are expected to be around for longer than anticipated, homebuyers are likely to lean into alternatives like collective buying.

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