MARKET VIEW: South Africa - Rainbow Nation on the Rise

South Africa is a nation of fusion – from languages and landscapes to cultures and climates. At the continent’s southern most tip and flanked by the Atlantic Ocean on the west and the warmer Indian Ocean on the southeast coast, South Africa covers a swathe of mountain ranges, deserts, African bush and tropical wetlands. The rich diversity of flora and fauna is unparalleled elsewhere in the world.

After nearly half a century of apartheid, 1994 ushered in an era of South African democracy and reconciliation. Although it will take decades to redress deeply imbedded social and economic inequalities imposed by the white regime, the ANC government is making great strides. For starters, the country is politically stable and the economy is in the throws of expansion.

Economic growth hovers around 4.2 per cent per annum. In 2004 inflation dropped to 4.3 percent and interest rates are at their lowest for nearly a quarter of a century. Over the past ten years, personal incomes have increased by 15 per cent in real terms. And within one short decade South Africa has become a serious international property destination, much to the surprise of most observers.

The Market

“South African residential property has received increasing attention from foreign buyers because of the country’s attractive climate, natural environment, stable economy and growing international status as a ‘peacemaker’ nation, but mainly,” says Lew Geffen, chairman of Sotheby’s International Realty SA, “it’s thanks to globally competitive property pricing.”

Current research shows that the price of luxury apartments and detached homes in South Africa averages between US$800 and US$1,000 per square metre, which represents a discount in global terms on average of about eight to one. This factor in particular has continued to make the country a popular location for foreign buyers, despite the strengthening of the Rand against foreign currencies such as the US dollar, the pound and the euro. The stronger Rand is an indication of the growing strength and stability of the economy and, according to Mr. Geffen, makes the country an increasingly low-risk investment venue.

South African property remains competitively priced and attractive to foreign investors. In Spain, for example, Sotheby’s is currently selling an 80sqm sea view apartment in Valencia for the equivalent of ZAR2.7m, while the same money will buy a 189sqm, three bedroom sea view apartment in upmarket Seapoint, Cape Town.

Stuart Chait, CEO of development company Property Partners comments: “South African property is still undervalued and offers a lifestyle incomparable with a similar spend in Europe. And looking forward, it is generally predicted that residential property will continue to impress over the next five years.”

Any foreigner can own property, including agricultural land. The choice is wide – from detached houses and golf course estates to game farms and vineyards.

No doubt that Cape Town and the Atlantic Seaboard have most favoured status for the foreign buyer. And while the Johannesburg residential market remains robust, especially for those drawn there for business, newest comer to the international market is Durban and the Kwa-Zulu Natal coast.

National average house prices are ZAR735,000 for Cape Town, ZAR840,000 in Johannesburg and ZAR650,000 in Durban according to South Africa’s biggest mortgage lender, Absa. But moving away from averages to upmarket, there are some new and spectacularly expensive properties on the market.

Properties

Clifton in Cape Town is known for its exclusivity and expansive views over the Atlantic Ocean. New to Clifton is Nettleton Ridge, a development for high net worth individuals, similar to the ‘Tai-Pan’ security estate above Stanley Harbour in Hong Kong. “I wanted to find a way of providing complete privacy and security for extremely wealthy and high profile foreign buyers to South Africa,” says Mr. Chait from Property Partners. “The homes have an extremely high level of specification.”

Each of the development’s seven 584sqm to 684sqm houses is on four levels. Modernist design and high tech, all feature four en suite bedrooms, three indoor entertainment areas, private lift, study, expansive out door terracing, infinity pool, staff quarters, triple garage and a climate controlled wine cellar. Prices, although not yet confirmed, start from around ZAR31.7m.

In Johannesburg two very different top end four bedroom properties are for sale through Sotheby’s. The first, in the leafy enclave of Morningside, is billed as an impressive family home with a study, pool and adjacent gazebo for ZAR4.5m. Or in Bryanston, ZAR3m buys a large house with a tennis court, pool and English country garden.

Durban, with its tropical climate and Indian Ocean setting, has long been overlooked as a prime South African property destination by foreigners, and not without reason. Local political wrangling alongside Durban’s reputation for pick-pocketing and petty crime is well documented. But a massive programme of clean-up and development is in full swing, helped no doubt by South Africa hosting the 2010 World Cup. A new airport is under construction and various new residential and commercial waterfront projects are under way.

Kwa-Zulu Natal properties on the market include a fully furnished three bedroom house in Shelly Beach with a large boathouse and guest flat for ZAR1.46m. Or at La Lucia a large Polynesian style house with a pool and sea views is ZAR3.7m. To the north of Durban is a three bedroom townhouse with pool and sea views for ZAR2.5m. All from Pam Golding International and in association with Savills.

Downside

Buying property in South Africa is not all roses. In the first place there is the thorny problem of crime. Many people on the ground, however, reckon the issue overstated. “Crime has been on a steady decline – 20 per cent year on year for the last five years – over the whole country. These days foreign clients are showing less concern about crime when considering the purchase of property,” says Lyall Scorovich at Pam Golding International in association with Savills.Also, there is a possibility that the government may impose some restrictions on the foreign acquisition of property in order to protect the black population from being priced out of the property. Many say that the high value placed on foreign investment will preclude this from happening. “And besides,” points out Mr. Chait, “there is always the company route.