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Everything you need to know is included in our South Africa Property Pack
Are you thinking of investing in property in the Rainbow Nation? Are you pondering if it's the right time to buy or if you should wait until next year?
When it comes to market timing, everyone has their own opinion Your South African colleague might suggest that now is a perfect time to invest in property, whereas your spouse, who is originally from Johannesburg, might have a different view and recommend waiting for more stability.
At TheAfricanvestor, when we create articles or update our pack of documents related to the real estate market in South Africa, we prioritize evidence-based work, relying on reliable data and statistics rather than personal opinions or rumors.
We have carefully studied official reports and statistics from government websites, and we now have a trustworthy database with important information. Here's what we discovered, which can help you decide if it's a good idea to purchase real estate in South Africa.
We hope you find this article insightful!
How is the property market in South Africa currently?
South Africa is, nowadays, a relatively stable country
Neutral
If you want to invest in properties, prioritize stability as it fosters consistent returns and potential gains. It is an information you need as a foreigner looking to buy a property in South Africa.
Currently, South Africa is somewhat stable as a country. The last Fragile State Index reported for this country is 69.6, which is a decent number.
South Africa's relative stability today can be attributed to its robust democratic institutions and legal framework established post-apartheid, which have facilitated peaceful transitions of power and upheld the rule of law. Additionally, its diverse economy, bolstered by sectors such as mining, finance, and manufacturing, provides a foundation for economic resilience despite ongoing challenges.
We should now evaluate more data to see if the timing is right to buy property in this country.
South Africa will keep growing steadily
Positive
Before investing in properties, make sure the country's economy is in good shape.
As indicated by IMF projections, South Africa is set to conclude 2024 with a growth rate of 0.9%, which is quite flat. As for 2025, the experts say 1.2%.
However, this low number is just for the short-term, as South Africa's economy is expected to increase by 6% during the next 5 years, resulting in an average GDP growth rate of 1.2%.
A moderate growth rate in South Africa suggests a stable and gradually improving economy, which can lead to steady property value appreciation over time. This stability reduces the risk of sudden market crashes, making it a safer environment for property investment.
On top of that, there are other indicators to pay attention to.
South African business owners don't have faith in the economy
Negative
How do South Africans perceive the state of their economy? The GDP forecast is not the only factor to consider. Fortunately, in South Africa there is an official metric that is regularly reported. This doesn't apply to every country, so we're in luck.
Quantifying business leaders' confidence in the current and future economic conditions, the Business Consumer Index (BCI) is determined through surveys and assessments.
According to the Bureau for Economic Research (BER)'s data, the latest Business Confidence Index value is -24 for South Africa. To help you with interpretation, a pessimistic outlook is typically associated with a negative BCI score.
This is not new, business operators were not confident 12 months ago either. The BCI score, back then, was at -34.
A negative Business Confidence Index in South Africa can have detrimental effects on the property market. It may lead to decreased investment, slow price growth, and a limited supply of properties. Buyers might face challenges in finding motivated sellers or securing appropriate financing options.However, it's important to recognize that this negative sentiment alone doesn't directly dictate growth. There have been instances in the past where a negative BCI did not hinder subsequent growth. Therefore, it's essential to consider other data points and alternative indicators to gain a more comprehensive understanding.
South Africa is issuing significantly more building permits
Positive
If you're considering buying property in a country, it's worth looking at the number of construction permits that have been issued recently. When more building permits are issued, it suggests a positive shift and increased activity in the property market.
Here are some good news: the number of building permits delivered is surging n South Africa.
Indeed, in the past 12 months, according to Statistics South Africa, the total value of building permits delivered by the municipalities in South Africa rose by 9.2%.
The data above clearly indicates that many individuals think it's a great time to purchase property.
Keep in mind, though, that there will be more properties in the country. Then, it's possible that housing prices drop in South Africa in 2025.
South Africa's population is growing but getting poorer
Negative
Before you buy real estate, think about population growth and GDP per capita, because:
- a growing population means more people needing homes
- a higher GDP per person means people have more money to spend on housing (which can lead to increased property value over time)
In South Africa, the average GDP per capita has changed by -3.7% over the last 5 years. It is a concerning and unsettling statistic. However, the South African population is growing (+12% in 5 years).
Rental yields are exceptional in South Africa
Positive
Rental yield is a recognized metric for evaluating the profitability of real estate investments.
It represents the annual rental income generated by a property divided by its purchase price or market value. For instance, if a property in South Africa is purchased for 2,000,000 ZAR and generates 120,000 ZAR in annual rental income, the rental yield would be 6%.
According to Numbeo, rental properties in South Africa offer gross rental yields ranging from 8.6% and 11.3%. You can find a more detailed analysis (by property and areas) in our pack of documents related to the real estate market in South Africa.
It ranks among the top in the world.
As seen before, there might be a drop in property prices (due to an increase in real estate supply). However, since there won't be an increase in wealthy tenants, then we don't know whether gross rental yields are likely to increase in South Africa in 2025.
Everything you need to know is included in our South Africa Property Pack
In South Africa, inflation is anticipated to be minimal
Neutral
To simplify, inflation is when prices rise, and things become more expensive.
It's when your favorite braai meal costs 150 South African rand instead of 120 South African rand a couple of years ago.
If you're considering investing in a property, high inflation can offer you several advantages:
- Property values have a tendency to increase over time, leading to potential capital appreciation.
- Inflation can result in higher rental rates, thereby increasing the cash flow from the property.
- Inflation reduces the real value of debt, making mortgage payments more affordable.
- Real estate can act as a hedge against inflation, effectively preserving the value of the investment.
- Diversifying your portfolio with real estate provides stability during periods of inflation.
- Tax advantages, such as depreciation deductions, can help offset the impact of inflation.
In line with IMF predictions, over the next 5 years, South Africa will have an inflation rate of 1.0%, which gives us an average yearly increase of 0.2%.
This data is telling us that South Africa is expected to have near-zero inflation then. Prices won't rise and then your property investment may not appreciate.
Is it a good time to buy real estate in South Africa then?
Let's wrap things up!
2025 is shaping up to be a promising year to invest in property in South Africa, and there are several compelling reasons for this. Firstly, the country is currently enjoying a period of relative stability. This stability is crucial for property investors because it reduces the risk of sudden market fluctuations and provides a more predictable environment for making long-term investments. With the South African economy expected to grow by 6% over the next five years, resulting in an average GDP growth rate of 1.2%, the economic outlook is positive. This moderate growth rate suggests a stable and gradually improving economy, which can lead to steady property value appreciation over time.
Another factor contributing to the attractiveness of the South African property market is the increase in building permits being issued. This indicates a growing confidence in the real estate sector and suggests that there will be more housing options available in the near future. For potential buyers, this means a wider selection of properties to choose from, potentially at more competitive prices. Additionally, as the supply of housing increases, it can help to stabilize property prices, making it a more favorable time to buy.
While South Africa's population is growing, it's important to note that the economic conditions are causing some segments of the population to become poorer. This demographic shift can create opportunities for property investors, particularly in the rental market. According to Numbeo, rental properties in South Africa offer gross rental yields ranging from 8.6% to 11.3%. These attractive yields make investing in rental properties a potentially lucrative option, as there will likely be a steady demand for affordable housing.
Lastly, inflation in South Africa is anticipated to be minimal, which is good news for property buyers. Low inflation helps maintain the purchasing power of money, meaning that the cost of borrowing and maintaining a property is less likely to increase significantly. This economic environment makes it easier for investors to plan their finances and manage their property investments effectively. All these factors combined make 2025 a potentially excellent time to consider buying property in South Africa.
We genuinely hope this article has answered your questions effectively.. If you need to know more, you can check our our pack of documents related to the real estate market in South Africa.
-Will real estate prices go up in South Africa?
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.