Investing in Property in South Africa in 2019 - Good or bad idea?

4 Replies

I am a real estate agent based in Johannesburg, South Africa. Our property market is currently in a slump owing to political and economic factors. However there are great property deals to be found all around me. Prices are currently 20-30% below the peak in 2016. I am frustrated with the sales environment as qualified buyers are currently few and far between and those buyers that are serious offer way below asking price. Average time on the market is often 6 to 12 months or more! I would like to build financial freedom for myself and my family and have been dreaming of building an investment real estate portfolio for years now.

My conundrum is should I be building it in South Africa? 

My wife and I currently own 2 rental properties in Johannesburg worth around $400k total. One of which is mortgaged for $80k. The other is mortgage free. So we have substantial equity in both properties. I would love to use that equity to buy more rental properties. My wife who is more conservative questions whether we should own property in this country at all. My opinion is that there has probably never been a better time to buy property here. South Africa, and particularly Johannesburg, is the economic hub of the continent. We have the most advanced banking and property title systems in the world. Interest rates are relatively low at 10.25% and we have a strong and functioning judiciary. There is a housing shortage in Johannesburg as a result of migration of the population in search of better work opportunities. Consequently there is strong rental demand.

Does anybody out there have some advice for me? Am I missing the boat by not jumping into real estate in South Africa? Or will I be threatening my family's financial future if I do? Is it possible to replicate what you guys in the US are doing? Are there any local investors who have carved a path to financial freedom through real estate in South Africa?

Hi Aaron. In the late 90s our interest rates exceeded 25%! They have remained stable at around 10% for the last 10 years now. With interest rates at that level cost of capital is relatively high. Rental properties in Joburg typically yield around 10% pa. 

Hi Brad. I live in Pretoria and most of my investments are around Johannesburg. I definitely believe that Financial Freedom can be achieved locally. We do have high-interest rates compared to some other countries like the US, but our properties are also generally much lower-priced that the countries with the low-interest rates.

The saying 'don't put your eggs in one basket' is a cliche, but holds true. I do think it is smart to diversify geographically as well.

Perhaps we can have a chat some time?

Originally posted by @Aaron K. :

Interest rates are low at 10.25%!!!!!?  What do rental properties return down there.  A low interest rate in the USA is around 3.5%

Hi Aaron. It is definitely high compared to US interests rates. If I do my calculations on the 3.5% or so interest rate basically every property will cashflow. There are definitely properties that are cash flowing if you look at the right places. For example, we are currently busy with an apartment building that has a cash on cash return of 17.5% even with those interest rates.

Almost a bigger concern for me is that we do not have the long term fixed-rate mortgages like the US. Ours are predominantly adjustable rates and if you get it fixed it is for 2-3 years and you pay a premium to do that. So if interest rates change it affects your whole portfolio.


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