Property market attractive and growing in Cape Town

Dubai: Cape Town is probably the best known and most popular of Africa's cities and Cape Town (and the Western Cape province), is one of the top leisure destinations globally. It's got world class infrastructure, stunning flora and fauna, beautiful beaches, balmy weather and genuinely friendly people.

I was there in March 2008 for the first time to ride in the 110km-long Cape Argus cycle race and after seven days it was a very reluctant yours truly boarding the Dubai flight! However, this piece is not about tourism but why you should seriously consider the city for long term property investment.

The South African property market picked up in 2000 and peaked in 2005. The key drivers for growth were reduction in property transfer duties and income-tax, low interest rates, rising household incomes and a growing economy with GDP rising to 4.1% in 2000-04.

In the 2000-06 period, annual price increases were an average 20 per cent in nominal terms and in 2005, South Africa was rated the best performing property market globally by Knight Frank. The property market has a high "transparent" rating by Jones Lang LaSalle in its 2008 report which ranks South Africa close to Switzerland, Germany, Singapore and Hong Kong.

However since 2005, prices have declined and in Cape Town the growth rate slowed from 22 per cent in 2006-07 to 6 per cent in 2007-08. The reasons for this are declining affordability, rising inflation and interest rates, introduction of the National Credit Act limiting home finance and political uncertainty, more specifically the recent xenophobic violence and land reform issues.

It should be noted that it's not that prices are crashing but the rate of price growth has declined. Also, as per the South African Property Transfer Guide, the decline is mostly in the middle sector (i.e. value of 950,000 rand [Dh428,084] and sized between 140 to 220 square metres); top end as well as low end properties have either retained or increased in value.

Non-residents can buy freehold property with no restrictions - most countries have some sort of restriction on foreign ownership of property or land, and South Africa is currently one of only ten countries globally which does not. Property can be owned individually, jointly in undivided shares or by a company or trust.

Once a Property Sales Agreement is signed it is valid and binding and cannot ordinarily be terminated - this works well for the buyer, as it means that no other buyer can come in with a better offer and gazump you. South African resid-ence visas are not issued along with the property - you have to apply separately.

Financing

Non-residents can borrow up to 50 per cent of the property value. The loan needs approval by the South Africa Reserve Bank which is normally handled efficiently by the financing bank. Transfer duty (on a sliding scale) plus attorney's fees, deed office fees etc. for a purchase of 10 million rand, currently total approximately 787,000 rand or 7.8 per cent of property value, all payable by the buyer. All your investment plus profits can be repatriated provided the capital gains tax (10 per cent) has been paid and that the title deed has been stamped "non-resident".

The World Bank has forecast a robust 4.2 per cent GDP growth rate for South Africa in 2008, in their latest Global Development Finance Report. The nation is unlikely to see a recession and Standard & Poor's have affirmed their outlook is stable and that South Africa should be able to weather global economic turbulence.

On the back of this, two banks, ABSA and Standard Bank, recently forecast that house prices are likely to bottom out in late 2008/early 2009, presenting an excellent opportunity to invest, though buyers should have a long-term perspective.

Binod Shankar is a Chartered Accountant and CFA Charter holder and has spent several years working at senior levels at several of Dubai's largest property developers, analysing, inter alia, local and global property markets. This article does not constitute investment advice.