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.