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South Africa Makes International Headlines As A Property Investment Hotspot

High-net-worth property buyers with about R15 million to spare will get more bang for their buck if they invest in South Africa. According to global property consultancy Knight Frank’s latest The Wealth Report (2022), released yesterday, $1 million (R15 million) will buy you 220m2 of prime real estate in South Africa; 10 times the size of what you could afford at the same price in Hong Kong. Monaco, where R15 million will only buy you only 15m2 of prime real estate, in the most expensive city in the world for luxury properties.

“While not everyone can afford to spend R15 million on an ultra-luxury home, we are seeing an increase in applications for bonds for homes at the mid to upper end of the market,” says Carl Coetzee, CEO of BetterBond. “Although most of BetterBond’s approved bond applications are for homes of up to R1 million, there has been an almost 44% increase in applications for bonds of over R3 million. As interest rates start to gradually rise, we expect buyers at the upper end of the market who are less sensitive to price fluctuations to drive much of the buyer activity,” says Coetzee. Just over 6.6% of BetterBond’s grants for the 12 months ending January 2022 were for bonds of upwards of R3 million.

“The Knight Frank Report also notes that notwithstanding the economic impact of the pandemic, there are still residential hotspots reporting strong signs of growth. Unsurprisingly, Constantia in Cape Town has been named as one of the areas in the world where the demand for larger properties with ample space to work from home is expected to push up house prices by between 25 and 30% in the next five years,” says Coetzee.

But it’s not just South Africa’s upper end of the property market that is making international headlines, says Coetzee. Recent research by Compare The Market shows that South Africa has the most competitive bond versus rental prices in the world. The difference between owning and renting a home of the same value is only 0.8%. “With such a small gap between renting and buying, the benefits of having an asset that appreciates in value over time means that it makes more financial sense to own rather than rent a home,” says Coetzee.

The Australian report estimates South Africa’s average rental nationally to be about R12 851, and the average bond repayment to be just R240 more at R13 091 a month. “Months of record-low interest rates, which saw the prime lending rate hold steady at 7% for more than a year, improved affordability for home owners across all price bands,” explains Coetzee. “With this, more buyers have seen the value of buying rather than renting. As a result, BetterBond has seen an uptick in buyer activity in recent months. BetterBond reported a 8,43% increase in bond registrations for the 12 months ending January 2022.

FNB reports that for the first nine months of 2021, the average mortgage size approved was approximately 16% higher than in 2020, and the average property size was approximately 6% larger, compared to the same period in 2020. “BetterBond’s average approved bond size increased by 11.17% for the 12 months ending January 2022, with the average home purchase price increasing by almost 11.5%,” says Coetzee.

“We expect bond activity to remain buoyant, despite FNB’s projected repo rate increase of 100 basis points for the year,” says Coetzee. “Much of this will be driven by the middle-to-upper price buyers who have access to credit and who are wanting to move to accommodate a work-from-home lifestyle. For these buyers, the benefits of owning instead of paying monthly rent will remain pertinent.”