Property

South Africa

Led by an emerging black middle class and the rising number of South Africans living abroad but keeping a bolthole back home, the Rainbow Nation now has some of the fastest-growing house prices on the planet. Property consultancy Knight Frank says South Africa racked up an impressive 15.3% growth in this year's second quarter.

'Things are very good at the moment,' says Lanice Steward, managing director of Anne Porter Properties, Knight Frank's South African associate. Since apartheid ended in 1994, house prices have been rising – they rocketed 35% in 2002-03 – but Lanice thinks that there are still gains to be made.

'South Africans who went to London are now coming back,' she says. 'They've had a baby and reality has sunk in, not least because they realise it's a lot easier to dry nappies in our sunshine.'

Joking aside, she adds that international buyers, who make up 2% of purchasers, are targeting not only holiday homes but golf estates and game farm properties to run as businesses, following in the footsteps of Richard Branson who runs the Ulusaba safari lodge through his holiday company Virgin Limited Edition.

Rising house prices are nowhere more noticeable than in the country's tourist capital, Cape Town. The city may be better known for its picture postcard panoramas of Table Top mountain and its enviable ocean views but investors would do well to take note of rocketing residential prices. These registered an eye-popping 26% rise in value over the last 12 months. Despite this, the average price for an apartment is €355,000 – which according to Knight Frank only Phuket and the Black Sea in Bulgaria can better for value.

However, those hoping to live off a juicy rental income can forget it. Rental yields struggle to reach the 5% mark. These have been hit by low interest rates which have encouraged potential tenants to buy rather than let. However, Steward believes rental income is not paramount. 'If you buy a home for €1m you should get €3,000 a month but that is not going to cover a mortgage loan of about 5-6%; capital appreciation is key.'

Even in holiday hotspots such as the Garden Route, Steward says rental returns are 'not huge'. She recommends looking for properties with an angle such as the golf estates in Knysna, which has an increasing retirement population as baby boomers look for a place to settle in the sun.

Private residence clubs are also growing in popularity, says Andrew Golding, chief executive of property consultancy Pam Golding. These allow investors to use the property for three to four weeks a year and only pay for the time used. Alternatively, apartments can be rented out as part of a pool managed by a hotel operator. 'These have been especially popular along the coast in KwaZulu-Natal as well as the Western Cape, but the future hot spots will be in undiscovered towns and villages within an hour's travel time of a major metropolitan area.'

Distinctly less glamorous but possibly more lucrative is the affordable housing sector. Research by Pam Golding shows that returns from properties valued at up to €250,000 far outstripped more expensive homes. In December last year they had notched up a growth of 37.5%.

Plan Trust Developments is hoping to take advantage of this. It is currently working up three such schemes around Somerset West and Gordon's Bay, totalling 250 units. Director François Steenkamp says: 'There's definitely still steam in the market, we've seen people upgrading their property and before the next wave we need to see new people come into the market at entry level.'

Foreign ownership laws At present there are no barriers to entry but the government has mooted that changes will be made.
Taxes and feesCapital gains tax is 10% and solicitors will hold this back on sale. Legal transfer duty is 8% and mortgage companies will generally lend 50% of property value to international buyers.
Current annual house price inflation After soaring rises, the market has settled to 15%.
Types of property in demand Apartments on golf courses and lodges are popular, as are apartments and large villas in and around Cape Town. The traditional market for these has spread up the Eastern Cape and Garden Route to KwaZulu-Natal. Security is important. Most developments have a bicycle patrol backed up by an armed response unit.
Average buy-to-let yields Returns are a modest 5%.

What your money buys

€150,000
A cottage or small apartment in Cape Town

€350,000
A mid-size apartment in Cape Town's Atlantic sea board or a suburban family home

€600,000
A large apartment with sea views or an upper middle class family home in the suburbs

Alive and kicking

In just under 1,000 days football fever is set to hit South Africa. The tournament kicks off in Johannesburg in July 2010, and property returns could be huge.

In Paris, which hosted the World Cup in 2002, property prices escalated by 55%, and those close to the stadiums doubled. However, experts are divided on the impact in South Africa.

With the event still nearly three years away it's an ideal time for those willing to speculate, believes Lanice Steward, managing director of Anne Porter Properties, Knight Frank's South African associate: 'I don't think we've even begun to see its impact yet.'

With South African Tourism estimating a rise in visitor figures of 50%, bringing in €3bn in 2010, most of the gains made will be in B&Bs, lodges and small hotels, rather than in the traditional buy-to-let market. As a result, François Steenkamp of developer Plan Trust Developments, warns against getting carried away by the hype. 'The World Cup will raise awareness of South Africa as a whole and prick people's minds to think about the country,' he says, 'but I don't think anyone will invest just because of that one event.'