Investment in the South African Property Market

The SA property market has shown remarkable growth in the past few years. Not only did SA take first place in the ResearchWorldwide.com’s 2004 rankings with a
32.6% (nominal) house price increase in that year, but according to the Economist Magazine, South African property was the best performing property market in the world for the period between 1997 and 2004 with a 195% cumulative price appreciation (nominal), placing SA ahead of Ireland at 179% and Britain at 131%. This growth followed a period of long political uncertainty pre 1994 – another indication of the success with which SA transformed itself into a fully fledged democracy.

A number of factors fuelled this growth, including personal tax relief, lower transfer duties on property, strong growth in the real disposable income of households, the improved investment status of property compared with that of other asset classes, relatively low inflation and interest rates, strong domestic demand for housing as a result of an increasing number of households and a rapidly growing middle class amongst previously disadvantaged communities; as well as increasing foreign demand.

Since the boom of 2004-05 that saw prices increase by up to 50% (nominally) in the country’s most sought-after suburbs, South Africa’s property market has reverted to a more sustainable growth rate with 12% (nominal) being recorded for 2006. Demand remains strong at the upper end of the market where record prices are consistently being broken in most of the larger sub-regions of the country and this trend is likely to continue in the run up to and wake of the 2010 World Cup, which is being held in SA. A large portion of this buying interest is from international investors, who have faith in the future economic fundamentals of South Africa.

The average house price stands at approximately 800 000 Rand (R) and the exchange rate has been relatively stable for the past three years at around 7 Rand to the US Dollar. The exchange rate as of February 2007 was R7, 30 to $1.

The comparable cost of luxury property is five to ten times cheaper than major metropolitan cities around the world including London, New York, Los Angeles, Munich, Paris and Dublin.

An extract from the Mecer Human Resources cost of living survey reveals the following ranking and relative cheapness of South Africa:

Source: MercerHR.com 2004

The following table gives an indication of the costs per square metre for upmarket residential property in the 5 more popular regions in SA:

The prime lending rate currently stands at 12.5%, and the consensus among economists is for it to remain unchanged for the next 12 months.

The majority of foreign buyers invest in SA to take advantage of the favourable exchange rate and the unparalleled outdoor lifestyle, which has stimulated the growth of a tourism industry that contributes over R1 billion a month to the economy.

Foreign investors typically purchase coastal properties in Cape Town (30% foreign-owned), the Garden Route, KwaZulu-Natal, Eastern Cape and Mpumalanga.

Inner city lock-up-and-go apartments are also becoming increasingly popular with foreigners, with high profile multi-use developments assisting to raise the profile of South Africa’s major metropolitan areas, including Cape Town and Johannesburg.

South Africa is the economic leader of Africa, with a gross domestic product (GDP) four times that of its southern African neighbours and comprising around
25% of the entire continent's GDP.

The country produces 40% of the continent’s industrial output, 45% of mineral production and generates over 50% of Africa’s electricity supply.

From September 1999 through to June 2005 the annual economic growth rate averaged 3.5% y/y. Recently, this rate accelerated due to rising consumer spending and government and corporate investment.

GDP growth was estimated at 4.9% in 2006 and government forecasts 4.8% growth in 2007. According to the South African Reserve Bank, there is no sign of this period of expansion coming to an end.

To download the PDF version of the South African Property Investment brochure, please click on the above image.

Whilst every care has been taken in ensuring the accuracy of the information provided in this section, Lew Geffen Sotheby’s International Realty take no accountability or liability for the accuracy of the information provided.