Africa offers a good environment for rising property prices, making real estate an attractive economic sector and preferred asset class for institutional and individual investors, according to Lauri E Elliott and Nissi Ekpott, authors of Grow Rich in the New Africa.
Countries with liberalised property markets are the most attractive to foreign investors. They have a long tradition of private property ownership and legal frameworks are quite sophisticated, offering investment security compared with African countries with more restrictive markets. Only five countries out of the 54 in Africa meet these criteria – South Africa, Botswana, Namibia, Morocco and Egypt.
South Africa has one of the world’s most accessible property markets, with foreigners allowed to acquire and own property, including agricultural land, whereas in Namibia, for instance, agricultural land is not available to foreigners. This makes South Africa a very popular investment option, and it’s not just Europeans, Britons and Americans who see opportunities here - about 20% of all foreign buyers of residential property in South Africa are now from the rest of Africa, according to a report by FNB. This is up from 16% in 2013.
“Proof of South Africa’s attractiveness as an emerging market is that it took President Ramaphosa and his ‘investment envoys’ just six months to reach the halfway mark on what was supposed to be a five-year quest to attract $100 billion worth of foreign and corporate investment,” says Berry Everitt, chief executive of Chas Everitt International property group. Perhaps even more importantly, he says, the president has also secured pledges from business and labour to help create at least 275 000 new jobs a year for the next five years, and has already set in motion a number of programmes to repair infrastructure, restore municipalities and basic services, make education accessible and relevant, and address major deficiencies in healthcare.
He says buyers and investors should not allow the current unsettled state of the global and local economies to cloud their vision of long-term gains. “With the US/China trade war and the ongoing Brexit saga dominating the news, many investors around the world are sitting on the sidelines at the moment. But South Africa is actually benefiting from the current situation, with the weaker pound and dollar being good for the rand.” The shaky world situation is also expected to give a further boost to local home demand and sales, he says. But even as things are, banks are keen to lend to home buyers, household debt is at a 10-year low and recent statistics from Lightstone and BetterBond show that South Africa is already quietly gaining about 77 000 new home owners a year.
“Urbanisation is also happening very rapidly, and according to StatsSA, developers are anticipating a related increase in the demand for rental homes by planning more than R40bn worth of new private sector housing over the next two years, most of which is sectional title flats and townhouses.”
So why invest in property in South Africa?
You can still buy property for less than R1 million, and this is the most active market at the moment. For buy-to-let owners, the risks are lower and the rental market is strongest for such properties. This type of investment promises better potential growth than any vehicle presently offered by a financial institution, particularly if the property is in a busy neighbourhood close to public transport, schools and shopping centres. Property is a long-term investment, and even if price growth at present is sluggish, values have historically proved to increase over a number of years. In fact, a sluggish price growth environment is the ideal time to invest in an asset that has traditionally been shown to increase in value in the medium to long term.
On the whole, real estate in South Africa is an attractive economic sector and preferred asset class for institutional and individual investors alike.