Buying property in South Africa

by Jose Marc Castro on October 3, 2009

movingtosouthafricaIMAGESouth Africa is located at the Southern tip of the African continent, with surrounding countries including Namibia, Botswana Zimbabwe, Mozambique and Swaziland.  The country is the centerpiece of the African continent, and while it has received more than its fair share of negative press over the last fifty years, the country has a lot more to offer than many choose to believe.

The country is steeped in history and while the political background has not always been stable but it is now probably as stable as it has ever been.  Often referred to as one of the hotter countries of the world, Africa actually has a varied climate with extreme desert in the South, and sub-tropical pastures in the North.

Once cast aside from the world trade environment due to its policy apartheid, the country is very much on the up with trade growing and many people looking to relocate in this beautiful land.  While officially classed as a developing country, the areas such as Cape Town, Port Elizabeth and Durban are very much developed and the central hub of the country’s economy.  These are the areas which attract the most of the Expats living in South Africa, and while there is still much to do on the political and social front, headway is most definitely being made.

Nowadays, purchasing property in South Africa offers many advantages, such as a pleasant climate, good value, comfortable homes, buoyant market, good purchase procedures, good market for food and wine and access to services such as transport and telecommunications set in the natural splendor of the South African countryside.

Contents: Property Market Performance in South AfricaProperty Costs in South Africa

Property Market Performance in South Africa

It seems as though those years in the wilderness have left a lot of pent up demand for South Africa, demonstrated by the fact that in 2005 it was the 5th most popular location for an overseas property investment.  The property sector grew by some 32% in 2005 (in local currency terms) although this did slow to around 15% in 2006.  However, there are good reasons why the property sector of South Africa is under valued, and expected to grow over the next few years. This growth though has been stunted as the country is now undergoing its first recession in seventeen years and this has definitely affected the real property market.

As a rule of thumb analysts tend to use the Gross Domestic Product (GDP) of a country to determine the direction of property prices, and the sector in general.  While this relationship has worked in South Africa, it has gone out of synch over the last twenty years.  Since 1988 property prices have fallen some 66% below the growth rate of GDP, indicating that property prices are undervalued by a factor of 2/3rds.  Even though this may not be a totally accurate figure, the difference is still too excessive, even for a country which is as diverse as South Africa.

There are also a multitude of other reasons to consider South Africa, including :

  • Heavy promotion of the country by the South African government.
  • Social factors, which are seeing a balancing of human rights in the country and further integration of cultures.
  • A strengthening of the currency.
  • Increased confidence in the economy.
  • A repatriation of funds that was illegally transferred off shore during the difficult years.

While there is still much work to be done in South Africa, the economy and the social scene are most definitely moving in the right direction.  An appreciation of the country by the international community is helping to increase the level of acceptance and encouraging a high number of immigrants from various areas of the world.

Property Costs in South Africa

While there are no foreign ownership issues as such, there are a number of local laws which need to be adhered to.  It is therefore essential that local advisers and solicitors are employed at a very early stage. The prices for homes in South Africa depend upon the location and the layout, with the following additional costs:

  1. Estate agent fees, which are often negotiable.
  2. Transfer costs which can vary between 0% and 8% of the purchase price.
  3. A sliding scale Capital Gains Tax charge when the property is sold.

It must be noted that aside from the developed areas of South Africa it can be more difficult to purchase property in the smaller townships.  Extra caution should be taken if you are looking to buy in these areas.

{ 2 comments… read them below or add one }

Nicholas October 17, 2010 at 2:15 am

where does this stand now

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david fitzhugh January 18, 2012 at 2:24 am

The housing market is currently a bit depressed as property is still overpriced for the local markets. For an expat moving to SA, there are good bargins compared to a like property in most other first world countries. Foriegners cannot get a loan for more than 50% of the purchase price of a property which means you need to put down a hefty downpayment on real estate purchases. Intrest rates are high for real estate loans also, 9.5% currently. The biggest movers right now are very inexpensive housing and very expensive housing with the properties in between moving very slowly. I bought a property in 2009 in an upscale estate and have seen the market value decline slightly but as the market swings upward, I think it will have been a very good investment in the long run.

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