In the world of global real estate, South Africa emerges as a vibrant country, presenting a narrative of opportunity, growth, and undeniable allure. As the world’s financial magnates turn their gaze towards this southern tip of the African continent, one can’t help but ponder: What makes South African properties so enticing to global investors?
The Economic Canvas
South Africa’s position in the global economy offers a unique blend of stability and growth potential. As the African continent’s most industrialized nation, South Africa plays a pivotal role in driving economic activities, not just within its borders but across the continent. The country’s robust financial infrastructure, coupled with its rich natural resources, makes it a magnet for global investors.
Despite the impact of Covid-19 on the global economy, South Africa’s GDP is beginning to rebound led largely by growth in manufacturing and finance.
Here are some of the key drivers in the South African property market that emerge:
- The Stability of Bricks and Mortar: Unlike the volatile stock market, property investment in South Africa offers a more stable option. The tangible nature of real estate provides a sense of security, especially in a country where the property market has shown consistent growth.
- Property Shortage: South Africa’s historical and political backdrop has resulted in a significant housing shortage. The government’s focus on addressing this issue suggests a long-term growth potential in the property market. As people move to better neighborhoods and upscale homes, this trend is expected to continue.
- The Dynamic Property Cycle: The property cycle in South Africa is dynamic. Young professionals start by renting, then move on to buying their first property, and as they become more financially stable, they invest in larger properties. This continuous cycle ensures that there’s always demand at various stages, offering opportunities for investors at different levels.
Africa’s Future and Its Ripple Effect on Real Estate
Africa’s narrative is shifting. No longer just the “Dark Continent”, it’s now viewed as the “Next Frontier” of global growth. As countries within the continent continue to develop, there’s an increasing demand for infrastructure, housing, and commercial spaces. South Africa, with its advanced economy and strategic location, is poised to benefit immensely from this growth. The ripple effect on the property market is undeniable, with increased demand from both locals and foreigners looking to tap into this potential.
Key Benefits for Global Investors
For the discerning global investor, South Africa offers:
- A Landscape of Diversity: From the pristine beaches of Durban to the bustling streets of Johannesburg, the nation’s varied landscapes translate to a plethora of property options. This diversity makes it a top holiday destination, further driving the demand for vacation homes and rental properties.
- Favourable Exchange Rate: For investors from countries with stronger currencies, the exchange rate makes South African properties even more attractive. The country’s strong economy, being the second most robust in Africa, ensures good long-term returns.
- Tax Benefits: South Africa offers various tax incentives for property investors, including no VAT on property purchases and tax breaks for property development.
The South African property market has also experienced significant growth over the past decade. Data from Stats SA shows that prices have grown 141% in Cape Town over the last 13 years, while Johannesburg recorded prices rising on average by 71%. In the past year, residential property prices have increased by 5.8% nationally. Such statistics highlight the potential returns for investors in the South African property market.
Key Risks
Investing in property in South Africa, like any other investment, comes with its set of challenges and risks. Here are some of the key risks associated with property investment in the country:
- Interest Rate Increases: The South African Reserve Bank has increased interest rates dramatically over the past year in a bid to curb inflation. The current lending rate sits at 11.75%. Rising interest rates can increase monthly home loan payments, potentially leading to a rental loss if rents don’t rise at the same pace.
- Rental Increases: There’s a risk that annual rents won’t increase as fast as costs and interest rates. Costs can include levies, water, electricity, and maintenance. If rents don’t keep pace with these rising costs, it could affect the profitability of the investment.
- Tenant Payment Risk: The economic downturn and the effects of the Covid-19 pandemic have made it challenging for many tenants to meet their rental obligations. There’s a risk that existing tenants might not be able to pay their full rent or might default entirely. The Good Standing Ratio, which indicates the percentage of tenants who pay their rent on time, dropped to 71% in Q2 2020 from an average of 81% in 2019, although it recovered to 79% in Q1 2021.
- Load Shedding: Load shedding, a term all too familiar to South Africans, refers to the deliberate shutdown of electric power in parts or across a city. More than 40% of commercial property (CP) owners reported that these planned power outages are having a “serious impact” on their businesses. While the property market is intrinsically tied to the state of the economy, planned power outages have been particularly damaging to investor sentiment. The unpredictability and frequency of outages make it challenging for investors to see a stable future, impacting their willingness to invest.
However, it’s worth noting that despite these challenges, many property investors in South Africa have managed to navigate the turbulent waters. With the right strategies and guidance, it’s possible to mitigate some of these risks and even find opportunities amidst the challenges.
Conclusion
South Africa’s property market presents a golden opportunity for global investors. With its unique blend of macro and micro-economic factors, coupled with the broader growth prospects of the African continent, now is an opportune time to consider investing in South African real estate. The Cribvest platform allows you to invest in South African property for as little as R500 ($30) through fractional ownership. Get started on your property investment journey today.
Photo by Marlin Clark