Is investing in property in South Africa still a good idea?

Many foreigners own holiday homes in South Africa. However, it’s understandable if you’re wondering if investing in property in South Africa is still a good idea in a COVID-19 world.

According to leading South African property experts, there is indeed good reason. That’s mainly because it’s a buyer’s market for the time being.

1. Exceptional value in almost every price bracket in South Africa

Berry Everitt, Chief Executive of the Chas Everitt International property group, was quoted in the media as saying that buyers can find exceptional value on offer in almost every price bracket in South Africa at the moment. According to Everitt this is especially true in the R2.5 million to R5 million price bracket, where there is an oversupply of stock.

We asked Marco Garuti of SAHomeBuyers what areas are most popular with foreign nationals in this price bracket. He believes its two popular pockets of the Cape Peninsula and the Cape Winelands:

  • Atlantic Seaboard: In the Atlantic Seaboard, apartments are from available from R2.5 million and yield exceptional returns for buyers. Many swallows in this area use their apartments for short-term letting when overseas.
  • Southern Suburbs: These leafy suburbs are popular for its beautiful, spacious family homes close to leading schools. You’ll find that homes are in abundant supply and available from R4 million.
  • Cape Winelands: Security estates, where properties are available from R3 million, are a popular choice in the Cape Winelands. Plenty of new estates are in development, which means buyers are spoilt for choice. This is great for buyers because it puts them in the power seat when negotiating purchase prices.

2. It’s a buyer’s market in the R2.5 million to R4 million price bracket

Business Tech spoke with Gerhard Kotzé, managing director of the RealNet estate agency group, in January to get his take on how South Africa’s property market has changed at the start of 2021.

Kotze predicts that the second tier property market, properties between R2.5 million and R4 million, is set to face fairly strong headwinds due to the current economic pressures on middle-income consumers.

It’s likely that we’ll see a rise in the number of homeowners who are selling to alleviate financial pressure and in the number of distressed sales. These factors will add available inventory in the property market’s second tier and put downward pressure on prices.

Paul Stevens, Chief Executive Officer of Just Property, said to Business Tech that buyers are snatching up properties at the lower end of the market, which is creating stock shortages. Stevens predicted that South Africa will swing into a seller’s market in the second half of 2021 if this continues.

3. The repo rate is the lowest it’s been in decades

In January, the South African Reserve Bank’s Monetary Policy Committee (MPC) decided to keep the repo rate unchanged, at 3.5%. The MPC cut the repo rate to this record low in 2020 to aid South Africa’s recovery from COVID-19’s economic effects.

Further to this, South Africa’s prime lending rate sits at seven percent at the moment. The monthly repayments on a loan of R1 million is thus around R7 600. It’s not too long ago that this repayment would’ve been around R10 000 a month instead.

A word of caution if you’re looking to invest in a buy-to-let property instead…

Many South Africans lost their job as a result of COVID-19 or have had to take pay cuts, which means vacancies and tenants in arrears are at an all-time high. In his interview with Business Tech, Paul Stevens of Just Property predicts it’ll become more difficult to find tenants who can afford rent throughout the year, not easier.

It’s worth bearing this in mind if you’ll have to rent out your property to finance the purchase. For the time being, it could be a good idea to only invest if you plan on living in the property or you’re comfortable with it being unoccupied when you’re not in South Africa.