South Africa’s two-speed economy: What it means for the Residential Property Market

John Loos unpacks South Africa’s economic reality and why the Western Cape keeps winning

• Globally, uncertainty is the new normal - protectionism, tariffs, geopolitics and “deal-making” politics raise risk and volatility.
• Locally, inflation is behaving and rates have started easing, but the next phase is about moderate improvement, not a boom.
• The Western Cape remains the stand-out outperformer, driven by a deeper economic advantage: skills, governance incentives, and sustained in-migration.

At a recent Mega Estate Agents event in Cape Town, economist John Loos delivered a sharp, no-nonsense assessment of South Africa’s current economic landscape and what it means for residential property performance as the market heads into 2026.

The message was unambiguous: while the economy is showing tentative signs of improvement, South Africa remains a two-speed economy, and the residential property market is increasingly mirroring that divide, with certain regions and segments pulling decisively ahead of the rest.

Loos brings rare depth to this analysis. A former National Treasury economist involved in South Africa’s first Medium Term Expenditure Framework under Trevor Manuel, he later became Southern African Macroeconomist at IHSMarkit, coordinated Absa’s macro forecasts, and was named Reuters Economist of the Year in 2004.

He went on to build FNB’s influential Property Barometer, becoming one of the country’s leading voices on consumer and property cycles, before moving into commercial property finance to analyse the structural shifts reshaping the market in the wake of Covid and the rise of remote and hybrid work.

World backdrop: why global risk matters to local property

Loos opened with a reminder that South Africa’s property market does not operate in a bubble. Global trade and investor sentiment matter and the world is currently volatile.

His framework is simple: fear changes politics, and politics changes economics. Rising inequality in major economies, job displacement, immigration tension, and protectionist sentiment are pushing countries toward higher trade barriers, less global movement, and slower global growth. For South Africa, that can translate into:

• Export risk
• Currency volatility,
• Higher “risk pricing” on capital,
• Less predictable investment conditions.

The point wasn’t panic, it was realism: global uncertainty filters down into local confidence, and confidence is the oxygen of housing demand.

SA’s 2026 baseline: “moderately better” not a rocket ship

Loos’ national outlook is a theme investors should tattoo onto their thinking for the year ahead:

1. Inflation is under control, that’s the good news

Inflation sits in a range that supports stability, and the Reserve Bank’s direction toward a lower target focus reinforces that. This matters because stable inflation is the foundation for rate stability.

2. Rates may come down slightly more, but don’t expect miracles

He expects one more cut (around 25 basis points) rather than a dramatic easing cycle. The ultra-low “COVID-era” interest rate environment was, in his view, abnormal, a crisis-driven exception, not a new normal. That means:

• Affordability improves a bit,
• Sentiment lifts a bit,
• But it won’t “shoot the lights out.”

3. Growth remains mediocre

National growth is still described as stagnation-adjacent. There are positive signals including leading indicators improving, but nothing close to a broad-based breakout.

This “moderately better” environment is still meaningful for housing because rate cuts take time to filter through demand. But it’s a slow-release tailwind, not a sudden surge.

Residential market performance: improving with stress still visible

‍Loos highlighted that national house price growth has started beating inflation again, moving into positive real territory. That’s a key psychological shift: it signals the market is no longer merely “treading water” after costs.

But he was equally direct about the pressure still in the system:‍

Mortgage stress is still high

‍Arrears levels across the system remain elevated a hangover from the earlier hiking cycle. The encouraging part is that the data appears to be peaking, and cuts should bring gradual relief through 2026.

Building and development recovery is still “mediocre” nationally

‍Residential building activity remains far below the pre-2008 boom era and that’s not necessarily a bad thing. The bubble years created oversupply. But it does mean we shouldn’t expect a massive national construction rebound to solve housing constraints quickly.

The Western Cape: the real story is bigger than semigration

‍Here’s where the room likely leaned forward. Loos was confident: the Western Cape is still the outperformer — and the gap may widen.

Why it’s not just “people moving to Cape Town”

‍Yes, semigration and foreign demand add direct demand pressure. But Loos argued the more powerful driver is structural:

Skilled people follow quality of life & functional governance.

‍And skilled people then drive business formation, productivity, jobs, income growth, and ultimately property demand.

The Western Cape’s advantage compounds over time:

1. Better ability to attract/retain skills
2. Stronger economic performance
3. More opportunity and job creation
4. Higher local purchasing power
5. Increased housing demand
6. Continued outperformance

That’s why property inflation in the province has been materially stronger over the long run compared to other major regions and why the current upcycle is again showing the Western Cape pulling ahead.

“Competition” as the hidden economic superpower

‍One of Loos’ most important points was political-economy, not party politics: places perform better when leadership must compete to stay in power. Competition improves service delivery incentives, and service delivery strengthens economic performance.

That, in turn, underpins the Western Cape’s magnetism for:

• Skilled workers
• Entrepreneurs
• Remote workers
• Investment capital

The downside of winning: affordability, congestion, and spatial pressure

‍Outperformance brings pressure and Cape Town is now at a “crunch time” point where demand collides with constraints.

The pressures are visible

• Affordability deterioration
• Congestion and infrastructure strain
• Growth of informal settlements and homelessness
• Political tension around short-term letting and foreign buying

Loos’ view wasn’t to dismiss these concerns, but to put them in context: popular global cities become expensive. That’s the trade-off.

The deeper issue: the city’s economic geography

‍A powerful part of his talk was the critique of South Africa’s inherited “apartheid city” structure: economic opportunity remains concentrated, while large areas remain dormitory zones far from work.

His argument: you don’t fix pressure on the Atlantic Seaboard only by debating Airbnb or foreigners. You fix it by:

• Creating stronger economic nodes beyond the traditional “city bowl” gravity,
• Enabling densification in an orderly way, and
• Building transport systems that make mixed-use growth viable.

He referenced corridor-style densification and mass transport logic (global examples like Curitiba’s approach) as a blueprint concept: densify along transport corridors so housing, jobs, and mobility scale together.

Land reform and investment: risk and also competition

‍Loos also flagged land reform and expropriation risk as a primarily urban issue. The political stakes sit in the cities where votes are concentrated and urban populations keep rising.

But he added a forward-looking investment lens: municipalities that implement land policy responsibly could attract more investment,  while those that create uncertainty could repel it. In other words, land reform could unintentionally strengthen “metro competition” and capital will follow the jurisdictions that reduce risk and improve delivery.

The way forward into 2026: what this means for agents, investors, and developers

‍Loos’ underlying theme was motivation, incentives determine performance. And the property market is a scoreboard for how well places align incentives with delivery.

1. Nationally: plan for a steady grind, not a boom

• Expect gradual demand improvement as past rate cuts filter through.
• Expect ongoing household pressure easing slowly, not instantly.
• Don’t build strategies that require rapid GDP acceleration.

2. Regionally: the two-speed market is your reality

• The Western Cape remains structurally advantaged.
• Other regions can still deliver returns — but strategy must be more micro-targeted, yield-focused, and risk-aware.

3. In Cape Town and the Western Cape: the big opportunity is “managed growth”

If infrastructure, densification, transport corridors, and multi-node economic development accelerate, the province can extend its lead. If growth is unmanaged, the risks rise:

• Social friction
• Political backlash
• Declining liveability
• Widening inequality

4. For property professionals: follow the winners and copy the playbook

Loos’ sharpest business lesson was this: stop obsessing only over what’s broken - study what’s working and replicate the incentives. In property terms, that means:

• Backing well-run nodes,
• Prioritising governance quality in location selection,
• Treating “service delivery” as a core investment metric, not a footnote.

The big takeaway

‍South Africa enters 2026 in a better place than the recent past, but still far from a high-growth surge. The residential market is lifting off its lows, helped by easing inflation and mild rate relief, yet household stress and weak national growth keep the recovery restrained.

The Western Cape’s outperformance remains the stand-out story,  not because of a single trend like semigration, but because of a compounding economic advantage rooted in skills, incentives, governance competition, and confidence.

And that may be the most valuable takeaway of the day: property markets don’t just reflect supply and demand — they reflect motivation, management, and momentum.

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