With its desirable, cosmopolitan lifestyle and high international profile as a tourist destination, the Western Cape stands out as one of South Africa’s most in demand locations for owning residential property.

Foreigners can own immovable property in South Africa without any restriction. Around 20% of sales in the prime areas of the Western Cape metropolitan area have been to foreign buyers. International buyers originate from the UK and continental Europe and, increasingly, from other parts of Africa and the Middle East. Chinese buyers, who are major investors in African farmland, have also shown sustained interest in the vineyards of the Cape Winelands.

Prices in South Africa appreciated rapidly in the years preceding the 2008 market peak, with an average annual growth of 20% between 2000 and 2006, a sustained movement linked to the expanding middle class over this period. Prices saw modest falls in the wake of the global financial crisis, although South African residential property did not experience the same kind of price correction as has been seen in some western countries.

In recent years, however, South Africa’s rand has depreciated significantly. The cumulative drop since 2011 has been extreme; 20% in euro terms, 23% to the US dollar and 24% on the pound sterling. This has made the South African residential property market particularly appealing to international investors with stronger currencies who don’t believe that further significant falls in the value of their rand denominated assets will occur.

Typical house types include villas, townhouses, apartments and properties on secure developments. Secure developments are less prevalent in the Cape area compared to other parts of South Africa because the region is perceived to be safer. Atlantic Seaboard properties are the most desired because of their beach access, as are some properties on cliffs commanding views of the Atlantic Ocean.

Other popular locations are Stellenbosch in the Cape Winelands, which appeals to families and offers quality schools and a university.

While international buyers are enjoying currency discounts, domestic buyers are battling with rising interest rates. These were increased in January in a bid to counter rising inflation.

This has impacted residential price growth, although the value of large houses (200-400sqm), as recorded by the Asba house price index, appreciated by 7.3% in the year to January 2014 (3.5% in real terms). Smaller units, by contrast, saw price falls in real terms over the same period.

While Cape Town benefits from a strong holiday rental market between November and January, high capital values mean that yields, typically under 5%, are significantly lower than those in Johannesburg.

Taken from
Spotlight: Prime Residential Retreats 2014