South Africa’s property market has slowed, with house prices declining modestly in 2011. South Africa’s house prices rose 2.3% in nominal terms, which translates into a decline of 2.6% in real terms, a disappointment following 2.7% house price rises in real terms in 2010.
Long gone are the amazing boom years from 2000 to 2006, when house prices rose by an average of 20% annually. Riding on the back of an empowered middle class, the house price rises peaked in Oct 2004 with 35.7% growth (32.5% in real terms). Then in Q1 2008 the boom ground to a halt, following the global financial crisis.
By early 2010 house prices were briefly surging again, encouraged by South Africa hosting the 19th FIFA World Cup. But they stalled again due to lower economic growth, rising inflation, and political corruption concerns.
ABSA predicts that average house prices will rise by around 2-3% in 2012 but, given continuing increases in inflation, house prices are now falling in real terms.
South Africa’s GDP needs to grow significantly, before the real estate sector sees convincing growth. “The (property) market is moving slowly and prices are under pressure, but there is still activity,” says Samuel Seeff of Seeff Property Services.
Key risks to South Africa’s housing market:
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. Thepurchaser 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.
Long gone are the amazing boom years from 2000 to 2006, when house prices rose by an average of 20% annually. Riding on the back of an empowered middle class, the house price rises peaked in Oct 2004 with 35.7% growth (32.5% in real terms). Then in Q1 2008 the boom ground to a halt, following the global financial crisis.
By early 2010 house prices were briefly surging again, encouraged by South Africa hosting the 19th FIFA World Cup. But they stalled again due to lower economic growth, rising inflation, and political corruption concerns.
ABSA predicts that average house prices will rise by around 2-3% in 2012 but, given continuing increases in inflation, house prices are now falling in real terms.
South Africa’s GDP needs to grow significantly, before the real estate sector sees convincing growth. “The (property) market is moving slowly and prices are under pressure, but there is still activity,” says Samuel Seeff of Seeff Property Services.
Key risks to South Africa’s housing market:
- an uncertain economic recovery
- declining infrastructure investment
- more housing supply than demand, thus falling rental yields
- financial pressures on households
- rising mortgage interest rates, to counter rising inflation
- political concerns, as president Zuma turns up the populism
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. Thepurchaser 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 »
RENTAL YIELDS
Last Updated: Aug 22, 2011
South Africa’s house price rises resumed in 2010. By July, prices were up 12% on a year earlier. But the price increases are already slowing, and expected to continue slowing during the remainder of the year.
In Capetown, apartments sell for around US$3,000 to US$4,000 per square metre (sq. m.). We cannot easily determine sq. m. prices for other major cities, because South Africa follows the Anglo-Saxon practice of quoting prices in terms of numbers of bedrooms (regardless of size).
Rental yields seem excellent both in Cape Town and in Johannesburg. It is possible to get returns of over 8% on smaller units in Cape Town, and over 10% in Johannesburg.
Currency volatility is a worry. The South African Rand has appreciated against major currencies over the past few years, but suffered a major collapse 1995-2002, and another period of weakness 2005-2008.
In Capetown, apartments sell for around US$3,000 to US$4,000 per square metre (sq. m.). We cannot easily determine sq. m. prices for other major cities, because South Africa follows the Anglo-Saxon practice of quoting prices in terms of numbers of bedrooms (regardless of size).
Rental yields seem excellent both in Cape Town and in Johannesburg. It is possible to get returns of over 8% on smaller units in Cape Town, and over 10% in Johannesburg.
Currency volatility is a worry. The South African Rand has appreciated against major currencies over the past few years, but suffered a major collapse 1995-2002, and another period of weakness 2005-2008.
TAXES AND COSTS
Last Updated: Jan 13, 2012
Rental Income: Annual rental income below ZAR150,000 (US$18,618) is taxed at 18%. Marginal tax rates rise progressively to 40% for annual income beyond ZAR580,000 (US$71,991).
Capital Gains: Capital Gains Tax (CGT) is calculated by adding 25% 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. This curious manner of calculating CGT means that the maximum tax rate applicable is approximately 10% (25% of the maximum tax rate of 40%).
Inheritance: Estate duty on inheritance is levied at 20% of the dutiable amount of the estate. The dutiable amount is the value of the estate, minus ZAR3,500,000 (US$503,229).
Residents: Since May 2001, residents are taxed on their worldwide income at progressive rates, from 18% to 40%.
Capital Gains: Capital Gains Tax (CGT) is calculated by adding 25% 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. This curious manner of calculating CGT means that the maximum tax rate applicable is approximately 10% (25% of the maximum tax rate of 40%).
Inheritance: Estate duty on inheritance is levied at 20% of the dutiable amount of the estate. The dutiable amount is the value of the estate, minus ZAR3,500,000 (US$503,229).
Residents: Since May 2001, residents are taxed on their worldwide income at progressive rates, from 18% to 40%.
BUYING GUIDE
Last Updated: Nov 20, 2006
Total roundtrip buying costs are between 8.9% and 24.35%, inclusive of the 7.5% estate agent’s commission (plus 14% VAT). Six procedures are involved in registering a property transfer, completed in about 20 days.
LANDLORD AND TENANT
Last Updated: Jul 03, 2006
Rental market laws in South Africa are pro-landlord.
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.
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.
ECONOMIC GROWTH
Last Updated: Mar 05, 2012
South Africa - economic growth not rapid enough to reduce unemployment
Before being hit by the global economic crisis in 2008, South Africa experienced unprecedented growth. But the economic slowdown plunged the economy into a recession in late 2008.
South Africa is Africa’s biggest economy (pop. 49.9 million, GDP/cap US$7,158). 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.
However GDP growth is expected to slow down to 2.7% in 2012, due to falling demand from European countries, thus affecting export and the agriculture and manufacturing sectors. Also budget constraints faced by the government will lead to moderation of growth.
The property market too is poised for slower growth in 2012. Residential sales have been weak in 2011, with prices remaining flat or declining. Coupled with high unemployment rate and rising inflation, economists are cautiously optimistic about the South African economy.
South Africa is Africa’s biggest economy (pop. 49.9 million, GDP/cap US$7,158). 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.
However GDP growth is expected to slow down to 2.7% in 2012, due to falling demand from European countries, thus affecting export and the agriculture and manufacturing sectors. Also budget constraints faced by the government will lead to moderation of growth.
The property market too is poised for slower growth in 2012. Residential sales have been weak in 2011, with prices remaining flat or declining. Coupled with high unemployment rate and rising inflation, economists are cautiously optimistic about the South African economy.
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