During 2012, the house price index for medium-sized houses rose by 9.53% (3.57% in real terms), the highest year-on-year increase since February 2008, based on figures released by ABSA. House prices increased by 2.93% (1.63% in real terms) during the latest quarter.
In January 2013:
- the average price of small homes (80-140 sq. m) was ZAR789,400 (US$89,301)
- the average price of medium-sized homes (141-220 sq. m) was ZAR1,077,700 (US$121,915)
- the average price of large homes (221-400 sq. m) was ZAR1,592,800 (US$180,185).
“Low interest rates will continue to support the property market and the affordability of mortgage finance,” said ABSA. But ABSA predicts that though nominal house prices will rise in 2013, these rises will remain in single digits in view of slowing economy, and real house price growth will remain under pressure, given continuing increases in inflation.
Residential building plans approved dropped by 5.8% to 49,775 units in 2012. On the other hand, residential buildings completed rose 6.2% to 43,031 units. Total outstanding residential mortgage balances increased by 3% to ZAR790.9 billion (US$89.5 billion) in 2012, according to the South African Reserve Bank (SARB).
During the housing boom (from 2000 to 2006), house prices rose by an average of 20% annually. Riding on the back of an empowered middle class, house price rises peaked in Oct 2004 with 35.7% annual growth (32.5% in real terms). However in Q1 2008 the boom ground to a halt, following the global financial crisis.
- In 2008, house prices fell by 0.5% (-9% in real terms)
- In 2009, the property market remained depressed, with house prices rising by a meagre 0.3% (-5.4% in real terms)
- In 2010, house prices increased by 2.3% (-1.1% in real terms), encouraged by South Africa hosting the 19th FIFA World Cup
- In 2011, house prices rose by just 1% (-5% in real terms), due to lower economic growth, rising inflation, and political corruption concerns
Foreigners can own immovable property in South Africa without restriction. However, all foreign funds remitted to the country must be declared and documented to ensure repatriation. The property must also be endorsed ‘non-resident’, as a condition for repatriation.
Non-resident investors have to pay Capital Gains Tax when they later sell their properties. The purchaser of the property is required to deduct a prescribed percentage from the proceeds of the sale and remit it directly to the South African Revenue Service before paying the balance to the seller.
Analysis of South Africa Residential Property Market »
The most desirable neighborhoods in Johannesburg are in the north of the city, including suburbs like Dunkeld, Hyde Park, Houghton, Illovo, Inanda, Melrose, Parkhurst, Parktown, Parkview, Sandhurst, Saxonwold and Westcliff. Nelson Mandela has a house in Houghton.
A two-bedroom apartment in the northern suburbs of Johannesburg will cost around USD 170,000, while a three-bedroom apartment costs around USD 280,000. Renting an apartment in Johannesburg, on average, costs somewhere between USD 900 to USD 2,500 per month.
Surprisingly, it is more costly to rent a house in Johannesburg than in Cape Town. A three-bedroom house in Johannesburg costs around USD 3,500 per month whereas in Cape Town, it costs only USD 3,000 per month.
In Cape Town the situation is completely different as regards return on investment. True, Cape Town is the most popular tourist destination in Africa. Its amazing beaches and weather are ideal for retirees and foreign property buyers. Atlantic Seaboard properties are among the most sought-after because of the beaches and cliffs – upscale neighbourhoods like Bakoven, Bantry Bay, Camps, Clifton, Fresnaye, Green Point and Mouille Point. Some houses nestled on cliffs have sweeping views of the Atlantic Ocean. City Bowl, which includes the central business district of Cape Town, is another upscale residential suburb. It is one of the most stable residential markets in Cape Town, because of its prime central location and vibrant cosmopolitan lifestyle.
But apartments and houses in Cape Town return poor rental yields, ranging from 3.27% to 4.97%. A 120 sq. m. apartment located in any of these neighborhoods will cost around USD 480,000 to buy. A bigger apartment, say of 220 sq. m., will cost more than a million US dollars.
Renting a Cape Town apartment will cost from around USD 14 to USD 17 per sq. m. per month, i.e., a 120 sq. m. apartment costs around USD 1,900 per month, and a 220 sq. m. apartment costs around USD 3,000 per month.
Houses such classy neighborhoods also cost more than a million dollars. For example, a four-bedroom house costs on average USD 1,500,000. Bigger houses with six or more bedrooms cost more, around USD 1,700,000. Houses are quoted by the number of bedrooms, regardless of size (that’s why we don’t have the sq. m. prices of houses).
Renting a house will cost you around USD 3,000 to USD 4,500 per month.
So the moral is simple – own a property in Johannesburg. But if you visit Cape Town, you should rent.
Capital Gains: Capital Gains Tax (CGT) (CGT) is calculated by adding 33.30% of the capital gain to the individual’s income for that year, and taxing that income at the individual’s marginal rate of income tax.
Inheritance: Estate duty on inheritance is levied at 20% of the dutiable amount of the estate. Dutiable amount is equal to the value of the estate less ZAR3,500,000 (US$424,994).
Residents: Residents are taxed on their worldwide income at progressive rates, from 18% to 40%. The tax bands are adjusted annually.
Rents: The passage of the Rental Housing Act [No.50 of 1999] marked the end of rent control which had been in place since 1976. This paved the way for the entry of investors to the buy-to-let industry.
Rent Tribunal: If the tenant feels that the rent is too much, he can file a protest with the Rent Tribunal. However, only three of the nine provinces have established such tribunals, to the advantage of landlords.
In the last quarter of 2012, the South African economy recorded a higher-than-expected real GDP growth (annualized) of 2.1%, up from just 1.2% the previous quarter, according to Statistics SA. Despite this, overall growth was lower in 2012 at 2.5%, down from 3.5% in 2011.
The current pace of growth is not enough to reduce unemployment. In the fourth quarter of 2012, South Africa’s unemployment rate was 24.9%, according to Statistics SA. From 2000 to 2011 average unemployment was persistently high, at 25.7%, according to the IMF.
To cut the high jobless rate in the country to about 14% by 2020, real GDP needs to grow an annual average of 7%, according to the government.
This is unlikely to happen. In January 2013, the South African Reserve Bank (SARB), the country’s central bank, cut its projected real GDP growth in 2013 to 2.6%, from an initial forecast of 2.9%, due to falling demand from European countries.
With a weaker rand and high unemployment, the SARB has kept its benchmark repurchase rate at 5% since a surprise cut in July last year. In January 2013, South Africa’s inflation rate was 5.4%. Inflation is expected to be 6% by end-2013.
"Producers and exporters face another difficult year,” the SARB said. “The recession in the eurozone is forecast to continue, and local operating conditions are expected to remain challenging given high electricity costs, strained labour relations, fading productivity and inadequate economic infrastructure. These constraints are generally expected to offset most of the benefits of a weaker rand.”
The South African rand has weakened over the US dollar recently, from an average exchange rate of US$1=ZAR7.6461 in February 2012 to about US$1=ZAR8.8744 in February 2013.
South Africa is Africa’s biggest economy (pop. 51.2 million, GDP/cap US$7,636). It has formidable manufacturing and financial sectors. It is the world’s largest exporter of gold and platinum. Tourism is also a key source of foreign exchange.