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258: Property investing in South Africa and the 2010 World Cup


03-08-2009

PropertyInvesting.net Team

The PropertyInvesting.net team visited South Africa to provide some insights for our visitors. Starting with the Cape Town area - it’s absolutely beautiful. Dramatic scenery, lovely beaches, history, culture, low retail prices, a growing economy and amazing “Mediterranean” climate – similar to central Italy. Only problem is the crime – 2010-world-cup-cape-town-studiumyou have to “watch your back” and “don’t be too trusting”.  As we have described before, the retiring babyboomers with high net worth have been looking for select properties with sea views, sun, sand, sailing, scenery for many years now.  Most of the British arriving at Cape Town airport seem to be over 55 years only. Many South Africa's from  Jo'burg retire in these parts.

You have all this beauty on the coast road from Cape Town through Green Point, Sea Point, Cliftonville, Bantry Bay, Camps Bay, Llandudno through to Hout Bay. Camps Bay - Bantry Bay are the closest you will get to the St Tropez of Africa – the best beach front penthouses now sell for £1 million. Cape Town harbour is rapidly developing with nice marina, shops and restaurants – and good maritime history. This is a stones-throw from the new World Cup Stadium in Cape Town at Greenpoint - currently on course for completion early 2010. The area just behind the stadium and anywhere in Greenpoint will likely see prices rising as regeneration efforts improve the area prior to the World Cup.

The Claremont suburb of Cape Town has spacious executive houses with good security – these make popular long term corporate rentals. Most living costs are half what they are in the UK  – no sign of this changing. Hout Bay is a more family oriented alternative residential area and is definitely up and coming – some new select gated developments are being built, the town does have a growing Township of squatters – crime is low because of a very effective neighbourhood watch scheme and community spirit. Further south along the dramatic coastline is Hoek Bay – a rather Bohemian place frequented by surfers – definitely up and coming – the sea is very warm which attracts bathers. Likely to become more mainstream and popular in the next ten years.

The economics of South Africa are less compelling – GDP growth of 3% in 2008 an projected -2% in 2009 is not good. The Rand has dropped from 10 to 18 to the pound, but has recently recovered to 15 because of the pounds drop. It’s still difficult to take large amounts of Rand out of the country. Commissions on property sales are high – like in Spain.  Manufacturing, centred in Johannesburg, was doing well in 2008 but South Africa has to compete with India and China, so the longer term outlook may not be so good. The crime probhout-bay-cape-town-south-africa-2010-world-cuplems don’t seem to be getting any better. So South Africa is not without its risk though any property investor visiting Cape Town and seeing Table Mountain, the Seven Apostles and all the beautiful beaches, wildlife, wineries, sun, sand, sea, scenery and culture will feel like buying a property - but be careful.

House prices rose by about 12% in 2007 and 9% in 2008 but are now dropping because of the global downturn - retail prices in inflation was 10% in 2008 and is also dropping to ca. 5% currently. Interest rates peaked at 15% in 2008. As you can see, the real price increases are only slightly above inflation - with the Rand exposed to weakness against the pound, Euro and dollar, it's a relatively risky place to attempt to make serious money, if you are from a country with a strong currency.  

Prices rose the strongest in Pretoria 45% by 2006 plying catch-up. This area used to be one large Township – now many locals have jobs in manufacturing, mining and land and property price have risen accordingly. Not for the average investor but for the more adventurous – could be with considering. In the Cape Town area, prices rose about 16% last year and are expected to rise by a further 7% this year. Interest rate recently rose to 9% so this will likely hinder the property market in 2007.

Other developing cities are Durban on the east coast and Johannesburg the capital and main financial centre – crime is still a big problem, so researching an area and buying secure property is important.

Price have now declining in most area – so the big boom of the last 6 years has ended – if you invest in South Africa, it will undoubtedly be a bet on the strength of the Rand. And any hike in oil price will hit the country hard – or taxes on airline fares (carbon tax) in view of the distance from Europe, Asia ancamps-bay-cape-town-south-africa-6km-from-2010-world-cupd USA.

Add to this the increased political risk from instability in the ANC party, problems controlling immigration from other African countries and an uncertain net migration of wealth to Europe, although the situation at present is relatively stable, the downside is quite large, albeit the economic upside is also quite large.

Problems were encountered Jan-Feb 2008 with power cuts, related mine closures caused by the cuts and some political turbulence - however, things rapidly improved by mid 2008 and things have been far more stable since. But it does highlight the uncertainties - and challenges the country has with power, exposure to high oil prices and reliance on high metals commodity prices, manufacturing and long-distance tourism for its economy. 

If oil prices skyrocket again, and airline travel costs rise, or the world stays in recession many years, South Africa could be hit hard.     world-cup-south-africa-2010-logo

But the Football World Cup in 2010 will likely boost prices in the main cities – Cape Town will see a big new stadium being build about 1 mile south-east of the harbour / marina - properties close to the action are likely to see values rise at a higher rate than the average area.

So overall – if you want a retirement home in the sun, it’s a great place being in the southern hemisphere – but for serious property investors, it might be best to focus are areas in Europe, Asia or USA close to where you live. Its more manageable and easier to pick up below market value property on an ongoing basis. And you wont have to worry about currency fluctuations.

 

We provide some hopefully useful resources below that can be used to map-identify the best investment areas - choosing low crime areas is important, along with regenerating areas possibly close to a World Cup stadium.

 

 

World Cup 2010 Stadium Locations

 

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Fifa World Cup 2010 draw

 

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World Cup 2010 South Africa Stadium Map   (www.cybercatown-com)

 

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World Cup 2010 Stadium South-africa

 

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World Cup 2010 South Africa Crime Map

 

 

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Fifa World Cup Nelson Mandela

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Madiba

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