Research article

Location by Location: South Africa

Foreign investment has been witnessed across all sectors.

South Africa enjoys a diversified economy. A constituent of the ‘BRICS’ association (Brazil, Russia, India, China, South Africa), it is characterised by comparatively wealthy cities and poor hinterlands. Cape Town accounts for 6.9% of South Africa’s population, but generates 10.6% of the country’s GDP.

At the national level, GDP grew by 1.5% in 2014 and unemployment is high, at 25%. In spite of challenging economic conditions, the property market is robust and house prices remain buoyant. The domestic residential market quickly recovered from the downturn caused by the global financial crisis and steadily gained momentum from 2011.

A weak rand puts dollar and sterling buyers in an especially strong position. Since a 2011 peak it has dropped some 52% to the dollar, and 56% to sterling as of July 2015 making the South African residential market particularly appealing to these purchasers.

Foreign investment has been seen across all sectors, notably in farmland where it has led to the introduction of the Land Holdings Bill, which limits the length of long-term leaseholds available to foreigners. Recent government rhetoric around more extensive reforms has led to uncertainty in the market. Around 7% of land in South Africa is currently owned by foreign nationals, up from less than 5% a decade ago.

Low interest rates, a modest improvement in household disposable income and a marginal strengthening of the overall economy suggest average house price inflation will be in high single digits this year.

Figure 29

FIGURE 29South Africa market performance (2006 – 2015)

Source: URA

Cape Town and the Western Cape

Cape Town is South Africa’s seat of National Parliament, and also the legislative capital of the country. The city, dominated by Table Mountain, is a global tourist hotspot with a distinctly European feel. Cape Town is located within the wealthy Western Cape. An important centre of finance and business services, it is a region characterised by low unemployment (by national standards), fertile land, and wine of worldwide renown.

The Western Cape’s residential real estate markets have outperformed the rest of the country in the last three years, but very recent performance suggests the rate of price growth is slowing. Annual residential price growth in the Western Cape of 7.3% was posted in the year to June 2015. This compares to national increases of 5.3% according to the Pam Golding Price index.

The Cape benefits from a strong holiday rental market between November and January, but high capital values mean that yields, typically under 5%, are significantly lower than those in Johannesburg.

Gated developments are commonplace in South Africa, albeit less so in the Western Cape as the area is perceived to be safer. Atlantic seaboard properties are particularly desirable given beach access and ocean views. Prime coastal areas are hemmed in between the ocean and the mountains, so land supply is limited and stock levels in these locations are restricted, sustaining inflating house prices.

Land supply is limited in Cape Town

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