South African market still investor's haven

Cape Town, capital of the Western Cape and Mother City of South Africa, is currently proving to be the hottest destination for foreign property investors in this country with most of the interest being in the residential sector.

Despite negative sentiments created by the high crime rate and the political situation in Zimbabwe, which many fear could spill over into South Africa, residential properties in the Cape have maintained a steady growth since 1999, offering yields of 10 per cent and upwards in the buy-to-let market. The interest in certain upper-bracket residential areas on the Atlantic Seaboard in Cape Town has been so great that house prices are moving into 'bubble price' territory, outstripping their replacement costs.

Real estate developers and analysts cite the main attraction as the exceptional Cape lifestyle with its Mediterranean climate, abundance of scenic locations provided by the coastlines, stunning mountain ranges and famous Cape Winelands with their historic roots, as well as the excellent value for money that these properties offer.

On top of this, Cape Town has also rocketed into the spotlight by being named City of the Year for Promoting Tourism and has also been rated the fourth hottest international destination for American tourists. Further good news is that Cape Town's new International Convention Centre has already secured 20 major exhibitions and 22 international conferences during its first year of operation.

Dr Andrew Golding, chief executive of Pam Golding Properties (PGP), one of the Cape's leading real estate companies, says: "In today's economic climate, amid volatility in equities and a demand for more secure and stable investments, property has become widely recognised as an extremely sound investment, particularly over the longer term."

In recent years not only have investments in solid bricks and mortar achieved excellent returns, but the South African property market has also emerged internationally as a safe haven for overseas investors. This is particularly true of the Western Cape region, which has always enjoyed a high profile internationally, particularly among tourists, who list the area as a preferred holiday destination.

The PGP group sold 1,000 properties to the value of Dh500 million to foreign buyers over the last year, attracting investors from some 48 countries around the globe, with investors from the UK, Germany and the U.S. the most abundant amongst them.

Traditionally higher priced homes have always been the most popular among foreign investors, but a new trend is becoming evident with middle range properties in the Dh300,000 to Dh600,000 also growing in popularity.

An added advantage for the potential investor is the great variety of properties available, which includes inter alia bed and breakfast guest houses, lodges, golfing estates, gentleman's estates, lifestyle estates, eco-tourism developments, wine farms, small game farms, and large family homes.

South African expatriates buying back into their own country seems to be another trend setting in. Dr Golding says: "A recent phenomenon experienced over the past 12 months is the increasing occurrence of South African expatriates utilising their blocked funds or offshore funds with local mortgages in order to purchase properties in the Atlantic Suburbs for leisure investment, retirement, etc."

These positive sentiments about the Cape residential property market are supported by the Rode Report, a prominent independent property publication.

"The residential sector is where the interest is. Prices have been growing since 1999 after a pedestrian performance during the 1990s. There has also been a lot of interest in the buy-to-let market, especially against the background of the softer performance of other investments like the share market. The only problem is that this has led to a bit of an oversupply in the rental accommodation market, placing a downward pressure on rentals.

"Most of the growth has been seen on the Atlantic Seaboard in suburbs like Bantry Bay, Clifton and Camps Bay, where in certain cases horrific prices have been paid for apartments and houses. Other areas like Constantia, Waterfront, Somerset West and Stellenbosch have also been doing well.

"Initially there were fears that South Africa could go the same route as Zimbabwe, but President Mbeki has already assured us that this will not happen. We think it highly unlikely that this country could go the same way," says the report.