Opportunity knocks in South Africa

Sunday Business Post - Property Expo 2008 Supplement - Feb 10 2008

With interest rates on the way down, and the World Cup due in 2010, now may be the best time to buy in South Africa, writes Dermot Corrigan

Local economic conditions mean this year is an opportune time to invest in the South African property market, according to Kevin McManamon, managing director of Accolade Overseas Homes.

"The South African property market has been extremely buoyant in the last few years," said McManamon. "However, for the last few months, prices have been a bit static. South African interest rates have risen and that has made it harder for locals to get mortgages."

Prices are set to rise over the next twelve months or so, McManamon said.

"It is expected that interest rates have reached the peak of their cycle and will drop over the next year," he said. "There is a huge new black middle-class coming onto the market, due to affirmative action policies introduced by the South African government. This will have a very positive affect on property prices in South Africa. Then, in 2010, you have the World Cup in South Africa. So at the moment I would view the South African market as an opportunity."

The Cape Town area is the most popular location for Irish investors or holiday-home owners who buy in South Africa, said McManamon.

"The most popular beachfront areas within Cape Town would be Blaauwburg, Gordon's Bay, Somerset West and Clifton, which would be a very exclusive area,” he said. "The wine areas are popular as well. The famous wine region of Stellenbosch, which is situated all around Cape Town, is only a ten minute drive away.”

McManamon said prices in the Cape Town region had appreciated by as much as 250 per cent in some cases in the past four years.

"Typical prices vary from area to area," he said. "Close to the beach, with sea views, you would need to allow about €150,000 for a nice two bedroom apartment. However, they start at much less, about €70,000. I know people that picked up apartments for €20,000 about four years ago, but you will get nothing there at that price now."



Popular locations
McManamon said that the majority of Irish people who bought in South Africa want to use the properties themselves, and tend to look close to Cape Town and its airport.

"Accessibility is a big factor," he said. "You have a direct flight from Dublin to Cape Town, so people tend to stick around that area. For the vast majority it is sun, sand and beach."

The Garden Route, about 300 kilometres east of Cape Town, is another option for investors.

"There is an absolutely gorgeous area all along the coastline east of the Garden Route, towards towns called Knysna and Plettenburg," said McManamon. "You are virtually living with the sea to your front and the jungle at the back of your garden."

"It is not as accessible as Cape Town; you are looking at a two to three hour drive from the airport. Along the garden route you are talking a minimum of €150,000. Ideally you would need around €200,000."

McManamon said homes in South Africa were generally larger than those in Europe.

"In South Africa, the apartments tend to be quite generous," he said. "In Spain or Portugal, a two bedroom apartment would typically be about 70 square metres, but in Cape Town they like open plan, large apartments, and around 90 to 100 square metres would be typical for a two bedroom apartment."


Appreciation rates
Darren Fields, managing director of Foreign Property Ventures, said other regions within South Africa offered value to more intrepid Irish investors.

"In the Hoedspruit region, a conservative estimate of appreciation on residential property is 200 per cent over the next five years, or about 40 per cent growth per annum, which is a fantastic return for investors," said Fields.

Fields said tourism was driving investment opportunities in developments around the world-famous Kruger National Park.

"We could be looking at the same thing happening in Kruger as has already happened in Cape Town, because of the amount of tourists that visit there each year," said Fields. "Around the Kruger National Park, you have several private estates and game reserves, such as the Moditlo development. You also have residential property regions.”

“This is true, natural wildlife conservation land. The region surrounding Moditlo and Kruger contain four of the ‘Big Five’ (lions, elephant, leopards and rhinos) that visitors to South Africa come to see and rarely leave without glimpsing.”


Buying in South Africa

Fields said the tax system in South Africa was relatively straightforward.

“When you buy a property there is no stamp duty or annual property tax,” he said. “The VAT is 14 per cent when purchasing property from a VAT registered vendor."

McManamon said the legal aspects of property purchases in South Africa were typically handled by one notary.

"In South Africa it is not the solicitor that looks after the conveyancing, there is a specialised conveyancing professional,” he said. “Usually the developer's expert will look after the conveyancing for the purchaser."

Investors should keep an eye on legislation currently making its way through the South African parliament, McManamon said.

"At present there is a 20 per cent capital gains tax on the profit from a property sale," he said. "However, there is possibly new legislation coming in this year on repatriating profits from South Africa."

McManamon said about half of Irish purchasers raised the money needed to buy a property locally.

"It is easy to get finance in South Africa, there are lots of mortgage brokers and it is a good system to use, but interest rates there are very high at the moment," he said.