Should You Invest?
South Africa is especially popular with Brits seeking winter
sunshine, and has the advantage of being in the same time zone as
the UK whilst boasting a considerably cheaper cost of living. House
prices here are much lower than in the UK or USA and in some areas,
prices are less than a 10th of prices in the South of England.
Standard family homes are available from around £65,000 ($132,000)
and two-bedroom apartments start from about £42,000 ($85,300) –
though prices vary depending on location, style of property and
local amenities.
As a second home, holiday or retirement destination, the country
is an attractive proposition. This is compounded by the fact that
as long as they are in the country legally at all times, owners of
property in South Africa are permitted to reside there for as long
as they wish. From a legal point of view then, South Africa is one
of the safer countries in which to buy a home. Non-residents who
own in the country have all the normal rights of ownership,
including the right to recover rental income.
Despite significant price rises over the last few years, entry
prices are still reasonable in many parts of the country, meaning
there is the potential to achieve good capital appreciation. Values
are still on the way up despite a recent slowdown in price growth.
Good rental opportunities are available for those in a position to
make cash purchases or to raise finance in lower interest
environments than South Africa.
- South Africa is reputed to have the best deeds registration
system in the world.
- Property can be owned individually, jointly in undivided shares
or by an entity such as a company, a close corporation or trust or
a similar entity registered outside the country.
- South Africa has a stable economy, a good amount of security
and possibilities for good rental potential and capital growth,
thus it will continue to attract more serious investors looking for
returns on their investment, meaning demand is likely to remain
high.
- There are, however, procedures and requirements which must be
complied with in certain circumstances so due diligence is
essential.
Rental Yields
The previously strong buy-to-let sector has recently diminished
with the growth in rental yields lessening. This is the result of
an influx of investors and rising yields unable to keep abreast of
price rises. However, for those who can afford to buy with cash,
the buy-to-let sector still represents a good investment. As
mortgage interest rates remain high and the rental market is still
a cheap option more and more local South Africans are finding that
renting is more cost effective than buying on finance. Although
yields are dropping then, demand for rental accommodation is still
high.
Yields remain highest in the luxury segments whilst inner city
rentals can also be a good investment. Johannesburg's luxury
segment offers yields of between 8% and 10%, because of its slower
house price growth rate. The luxury market of Cape Town has lower
yields at 3.4% to 5.3%, while middle segment properties yield
around 4.7% to 6.6%. Properties in Durban have lower yields again.
For those who are looking for rental returns and can pay up front,
apartments generally offer the best value and will have year-round
rental potential in good locations. Despite the recent slowdown,
rental rates in 2007 were still predicted to rise by 12-15%,
according to South African property experts.
location
type of
property |
number
of bedrooms |
average
price
to buy
(US$) |
average
price
to rent
(US$) |
yield
(%) |
Johannesburg -
Apartments |
|
|
|
|
| |
1 |
103,349 |
737 |
8.56% |
| |
2 |
165,140 |
1,231 |
8.95% |
| |
3 |
267,599 |
1,614 |
7.24% |
Johannesburg -
Houses |
|
|
|
|
| |
3 |
462,828 |
- |
- |
| |
4 |
676,465 |
- |
- |
| |
5 |
809,231 |
- |
- |
Cape Town -
Apartments |
|
|
|
|
| |
Studio |
136,119 |
686 |
6.05% |
| |
1 |
201,151 |
820 |
4.89% |
| |
2 |
334,083 |
1,221 |
4.39% |
| |
3 |
599,006 |
1,486 |
2.98% |
Cape Town -
Houses |
|
|
|
|
| |
2 |
351,902 |
- |
- |
| |
3 |
776,822 |
- |
- |
| |
4 |
1,274,831 |
- |
- |
| |
5 |
1,592,640 |
- |
- |
Source:
Global Property Guide
Price History
The majority of the price rises in South Africa occurred during
the first five years of the 21st century, as the economy began to
grow at a noticeable rate after the lull at the end of apartheid.
The Economist put South Africa's property market growth from 1997
to 2005 at 271%, and an average annual growth of 23% was registered
in 2005, following an impressive 32% rise in 2004.
All segments of the property market experienced a slowdown in
2006 compared to the previous two years. In 2006 house price
growth decelerated to between 12% and 15% annually and
indications suggested that this slowdown would continue throughout
2007. It is therefore a good idea to conduct careful research into
growth potential before putting money down.
Despite this slowdown though, property prices are still rising
and there remains plenty of room for investment. The capital is
unlikely to maintain the very high growth rates achieved during the
2004/5 periods, but, according to the ABSA (one of the largest
mortgage lending banks in South Africa), growth is predicted to
maintain a steady rate of 12% to 13% per annum.
Average property prices are approximately £96,000 ($195,000) for
a one-bedroom apartment and £287,000 ($583,100) for a four-bedroom
villa, but they do of course vary from area to area.
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