Interest Rate, Fuel Hikes and Global Pressure: Short-Term Pain, Long-Term Gain for SA Property
The first quarter of the year has been an interesting one.
The South African summer has seen a record number of international tourists venturing to our balmy shores (10 million in ’25), a wildly successful SA20 cricket tournament, and a record-setting LIV Golf event.
On the economic data front, consumer inflation reached a sweet spot in February, with both the headline and core inflation rates at 3%, in line with The South African Reserve Bank’s (SARB) newly adopted inflation target. Unemployment, although eye-wateringly high, reached a five-year low in the last quarter of 2025, while the PayInc Net Salary Index, which tracks the nominal net salaries of an estimated 2.1 million salary earners, showed a slight year-on-year increase in February ’26. PayInc is anticipating salary increases averaging 5.2% in 2026 for the country.
Politically, it seems that the anti-corruption wheels are in motion, albeit at an extremely slow pace, with the NPA summoning Police Top Dog General Fannie Masemola and arresting 12 top police officials in connection with the R360-million "Medicare24" tender corruption case.
The GNU, despite some very public squabbles, is holding, with structural reforms gaining traction. While we can look ahead to the next ANC elective conference in December 2027 with some trepidation, with no clear heir apparent to Cyril Ramaphosa, the ANC’s vice-like grip on the country seems to be waning. The noise from the extremities of our political divide also appears to have softened compared to the last two decades.
However, as with most of the rest of the world, our current outlook is being defined by global events. The conflict involving Iran is at the forefront of world news and shaping the global economic outlook. Not only is it creating instability and hawkish market sentiment, which negatively impacts our currency and inflation, but it has more importantly created a bottleneck in the Strait of Hormuz, resulting in worldwide shortages of crude oil, natural gas, fertiliser, and petrochemical supplies.
The SARB Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.75%, with the prime lending rate remaining at 10.75%. This marks the second consecutive hold, with the decision largely driven by uncertainty stemming from the Middle East conflict (Iran-related).
There is an expected sharp fuel price increase (potentially exceeding R5/litre) to be announced next week, which will not only increase petrol costs but will also have a knock-on effect on inflation and the overall cost of living.
How will all the above affect the South African property market?
In the lower end of the market (below R2 million), the cost-of-living pinch will have an immediate impact. Buyer demand is likely to slow as affordability tightens, which will dampen pricing levels. The buyer pool will shift toward a tenant pool, creating opportunities for investors focused on long-term rental returns.
As most of the economic data points toward a positive medium- to long-term outlook for the country - and if the conflict in the Middle East is, as expected, short-lived - this segment of the market should bounce back. As demand recovers, it is likely to provide healthy capital gains for the savvy investor.
The net migration the country has experienced over the last two years is expected to accelerate, with a proportion of the approximately 100,000 South Africans living in the UAE joining the steady stream of South Africans returning home. The success of the aforementioned sporting events, combined with improving local sentiment, is tugging at nostalgic, patriotic heartstrings, while the rising cost of living and uncertainty in temporary foreign homes are prompting many to reconsider South Africa.
These returning South Africans will continue to support steady demand for property in prime areas of the Cape and other pockets of the country, such as the North Coast of KZN. On the supply side, however, reduced investment certainty and pressure on overseas holdings may place strain on retirees and indebted households, resulting in more properties coming to market in these A-grade areas.
The expected increase in the cost of living in South Africa, a slowdown in international travel, and uncertainty around short-term rental municipal rates could place pressure on investors holding Airbnb-style properties, particularly in outlying areas. This may dampen demand and increase supply. However, this could also create opportunities for investors, as these conditions are likely to be short-term and value-driven deals may emerge for long-term gain.
Developers and speculators should be putting spades in the ground. As we look toward an economic rebound later in the year, returning diaspora buyers and foreign investors are likely to onshore capital into the South African property market toward the end of 2026 and into 2027 and beyond.