With an attractive rental market, high yields for luxury units and a pro-landlord landscape, property investment in South Africa – particularly in the buy-to-let market – has a lot of potential. However, as with many other countries, soaring inflation and sluggish economic growth has somewhat dimmed returns for property speculators throughout 2022.

South Africa’s housing market has battled a range of complex and interconnected headwinds. Difficulties include high unemployment, poor disposable income and an under-developed mortgage market. The gap between nominal and real prices has now significantly widened and demand has slowed, with residential market activity weakening in Q2 2022.

The disparity between nominal and real figures demonstrates the challenge for prospective property investors. From 2007 to 2021, house prices rose by approximately 69% in nominal terms, but when adjusted for inflation, real prices actually fell 19%. House price activity has also been slow, failing to rise to levels seen in 2005.

  • The South African property market has potential, with a landscape attuned to the needs of landlords and property investors.
  • From 2007 to 2021, real house prices fell in real terms by 19%, highlighting the wide gulf between nominal and real figures.
  • The economic situation in South Africa suffered during COVID-19 and has also failed to recover fully.
  • Roundtrip transaction costs are high in South Africa, starting at around 8.9% and reaching 27.35% in some instances.

However, forecasts for South Africa are positive. South Africa has the largest economy in Africa and the International Monetary Fund (IMF) expects the country to grow, albeit at a small rate, of 2.3%, in the coming months. South Africa's robust tourism sector and strong service-led economy could help in the medium-to-long term to generate lucrative returns for property investors.

1. Johannesburg

A city with global ambitions, Johannesburg is the cultural and economic centrepiece of South Africa and key to the nation's prosperity. Rapidly changing to meet the expectations of a new world, residential and commercial properties are being built at pace across the city. Johannesburg is also home to Maboneng, considered one of the world's most successful 'urban renewal' districts.

Alongside its modern and cosmopolitan culture, Johannesburg traces the history of South Africa across numerous museums in the city. The South African Museum of Military History, the James Hall Transport Museum and the landmark Apartheid Museum are must see venues for tourists and residents alike. There is also no shortage of bars, restaurants and shops to choose from.

Outstanding universities – both public and private – continue to attract ambitious students from around the world, leading to a student population of nearly 50,000 living in the city. The demographic of the city is reflected in its strong rental yields, which are higher than most other South African cities, with gross rental yields ranging from 6.5% to 9.3%.

2. Cape Town

One of the three capital cities of South Africa, and one of the country's cities most visited by tourists since post-apartheid 1990s, Cape Town is notable for its incredibly unique location and dynamic mix of cultures. Sitting between the imposing Table Mountain and scenic Table Bay, Cape Town is considered by locals and many tourists to be one of the world's most beautiful cities.

Natural splendour is not the only quality Cape Town possesses. Despite being one of three important capital cities, Cape Town is unique in that it houses the seat of the Parliament of South Africa. It is also a city intimately connected with Nelson Mandela and Cape Town's Harbour houses the boats which would have taken him to the Robben Island prison.

For property investors looking to explore opportunities in Cape Town, Returns on Investment (ROI) may not match up to the gains to be made in Johannesburg. Gross rental yields range, on average, approximately 5% to 8.3%. Historically, Johannesburg has consistently outperformed Cape Town in relation to yields.

3. Durban

With a population of approximately 3.77m people as of 2018, Durban is a well-populated city with one of the busiest ports in Africa. Durban is also home to one of South Africa's most popular beaches, which mostly attracts locals. At its most popular during the 1970s, Durban's allure for tourists waned in more recent years, particularly with the rise of Cape Town's prominence.

Despite this, Durban is increasingly generating interest from foreign investors, tourists and locals. Efforts are being made to secure investment for commercial and residential projects. Developments such as the downtown uShaka Marine World and ongoing investment into the city's Golden Mile will attempt to reverse the city's fortunes.

Durban offers property investors strong gross rental yields. Average yields across all areas – including Durban Central, Amanzimtoti, Pinetown and Umhlanga – reach just shy of 10%. Umhlanga offers landlords the most amount of rent per calendar month by apartment size, ranging from $407 to $1,301 for studio and four-bedroom properties respectively.

4. Centurion

A smaller city in the Gauteng Province of South Africa, Centurion has been part of the Tshwane Metropolitan Municipality since 2000. Despite its smaller size – Centurion only has a population of approximately 240,000 inhabitants – the city offers tourists, residents and property investors an interesting prospect to explore. Rietvlei Nature Reserve is one of the most popular sights.

Gross rental yields for Centurion are also above average and more substantial than rates in Johannesburg and Cape Town, on average reaching as high as 10% across all locations. Property investors looking to capitalise on the buy-to-let market can expect to pay between $32,421 and $73,190 on average for studio and four-bedroom apartments respectively.