Real Estate News – South Africa rates number one in house price growth

Unknown to many people in Nigeria, the Rainbow nation - South Africa - is a haven of real estate investments. It costs much less to acquire equivalent properties in South Africa than in Nigeria and with the impressive growth rate, a prudent investor can go to bed with two eyes closed.

A study compiled by Research Worldwide shows that, “low interest rates, the emergence of a rapidly growing black middle class and the longest period of uninterrupted economic growth in half a century,” have contributed to the current housing boom in South Africa.

The country rated number one in growth for a three-year cycle in succession among 20 countries surveyed. With stable government and good fiscal policies, better years seem to be ahead. According to Research Worldwide, SA properties have shown an average of more than 20 percent capital growth over the past five years. Prices have more than doubled during the period. The past two years have been very good, with the past year’s figures showing that prices have on the average increased by more than 25 percent.

The “traditional former white areas” are said to be the best places to invest for capital growth. However, exact growth in each area depends on a number of factors. For instance, properties in older suburbs (of 20 – 40 years old) are undervalued but still generally solid because the houses were built with bricks. As regards rate of return from rental property, it used to be that one should get a rental return of about 9 percent per annum of the value of the property.

But the recent huge increases in prices and a drop in interest rates over the past 18 months have put pressure on the rental market and it is very difficult to get such returns in the upper middle to high-class areas.

Considering the access to South African banks and moderate purchasing costs of properties, investments in SA’s realty pie appear rewarding, at least, in the areas of home purchasing, selling or letting. Banks can finance non-residents up to 50 percent of the purchase price of specified property, while ownership is either freehold or sectional title (that is, for flats, townhouses and other sectional developments, you can own a property forever unless it is a leasehold title, which is rare).

Notably, Estate Links, a Nigerian firm that has a wealth of experience as regards juicy properties in SA. “If you are interested in income,” the firm assures, “there are many areas with small to medium-sized blocks of flats (4 to 12) and semis, where you can pick the property for less than 70 percent of replacement value.

“The income,” according to a report, “is usually very aggressive and steady.” A simple one-bedroom flat townhouse in Sandton, Johannesburg (our Ikoyi) costs about R450 000 to R700 000, while a two-bedroom is about R650 000 to R1, 000, 000. The monthly rental on the flats will be about R4000 to R5000 and R5000 to R9 000 respectively. The costs are as follows: levies R500 to R1200, depending on many factors, while the letting agent charges about 10% of the monthly rents.

Still, an investor can pick up one or two bed-room flats and townhouses in good areas outside of Sandton for between R175 000 to R350 000. The rentals are better than those in Sandton, but the capital growth a bit less.