South Africa - Economic Factors

When investing in South Africa there are some economic issues of which you should be aware. Below we have listed varioussome facts to assist you in your research.


With a growing middle class in the previously deprived black population and an increase in tourism partly stimulated by the 2010 World Cup, there is a high demand for residential property in South Africa. Furthermore the interest of overseas second homebuyers has helped to keep this market steady.

Capital Growth

The South African property market continues to experience a steady growth and increases in prices of 13.5% in the Western Cape and 15.9% in metropolitan areas are being achieved. Growth has levelled since the boom in property during 2004 when it reached a remarkable 35%, but savvy investors see this flattening in growth rates as a plus and an indicaition of a more stable market.

Off-Plan

Off-plan property purchases are advantageous for investors as part of their investment strategy. In desirable metropolitan areas such as the Cape Peninsula area, off-plan is usually sold out well before the building or renovation project starts. Small initial payments and re-selling before or on completion signify good profits for the wise investor.

Commercial Property

The South African commercial property market achieved returns of 26.7% in 2006, placing it among the top performing markets worldwide, according to the Investment Property Databank (IPD). The growing economy is fuelling a strong demand for commercial property and according to the Economist Magazine this trend in the market is set to continue for some time.

Currency Exchange

The favourable rate of exchange between the Rand and other major currencies has done much to fuel investment interest in South Africa. The low rate achieved by the Rand enables property purchasers from Europe and the UK to buy more for their money.

Cost of Living

South Africa is a country with a two -tier economy - part of the country lives as the developed world and the other as undeveloped world and the cost of living between these differing standards varies greatly. The cost of living in South Africa is generally lower than in the UK, but on a par with most countries in Western Europe. However “living off the land' by buying local produce and not imported luxuries creates a considerably lower cost of living than in many other countries. Clothing in South Africa is extremely cheap in comparison with Europe, which is due to the many factories producing clothes for the international market..

Economic Stability

According to the Economist (Feb 2007), the South African economy is set on a steady growth path and forecast to keep steady for the foreseeable future. While inflation in past years was high, it has now been brought down through strict measures taken by the South African Reserve Bank to within the 3 to 6% target.

Furthermore, the Economist predicts growth in construction and continued expansion in total domestic demand will see a real GDP growth of 4.5% in 2007 and 5.1% in 2008.

Housing Shortage

Various influences such as the rise in house prices, a growing middle class and the 2010 World Cup have all conspired to create a housing shortage. The South Africa rental market is strong and many younger South Africans rent while they save enough to buy the homes of their dreams. The large numbers of tourists, both internal and external, also generate a high demand for accommodation and a profitable short-term rental market in key holiday hotspots.

Mortgages

Mortgages are available to borrowers between the ages of 18 - 70, for terms of up to 25 years and can be of the fixed interest or repayment types.

The South African mortgage market, or bond market as it is known locally, is very sophisticated and runs on the same lines as the British market. Banks and building societies in South Africa allocate mortgages according to “affordability factors', in other words the mortgagee's ability to repay the loan. A limitation on mortgages of 50% on the value of the property applies to non-residents.

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