Graham Norwood Journalism

With The World Cup On The Way, Jo'burg Prices Are A Steal

The Observer

For many Britons the idea of property in South Africa creates images of second homes on arid plains stretching to the far distance - but it may be time to consider the country's largest city, Johannesburg, as a prime buy to let investment opportunity too.

'With buy to let fast becoming unaffordable or unfeasible across the UK, the hunt is on for a growing economy with large-scale regeneration, a burgeoning rental sector, and the prospect of good capital appreciation over time. That, in a nutshell, is Johannesburg.'
The Observer

With buy to let fast becoming unaffordable or unfeasible across the UK, the hunt is on for a growing economy with large-scale regeneration, a burgeoning rental sector, and the prospect of good capital appreciation over time. That, in a nutshell, is Johannesburg.

The awarding of the 2010 World Cup to South Africa, with the main ceremonies and top games in Joburg, has kick-started regeneration in the city just as the 2012 Olympics is modernising north east London. An underground system is being built, new roads are easing Joburg's growing congestion, there is a promise to update inefficient electricity supplies and there is major investment in new hotels and the leisure industry.

Johannesburg's unique demographics also make for strong investment potential.

Corporate relocations continue apace, the airport is the largest in Africa and undergoing an expansion, and Durban is one of the world's busiest ports - all these factors are bringing more newcomers into the city than ever before.

The ANC government aims to clear the townships that fringe Johannesburg and other South African cities by 2014 and says it is relying on new-build developers and private landlords to assist in providing housing alternatives.

On top of that, the end of apartheid - it happened 14 years ago but its effects are still filtering through the economy - has produced a growing and aspirational middle class.

Data from TNS Research, an information firm, shows that 12,000 families move out of the country's townships each month, many of them led by people running their own businesses. Most rent before buying, usually in new schemes close to the townships around the boundaries of major cities.

But any Briton seeking to invest in what is clearly a fast-emerging and potentially successful market, must take account of Johannesburg's major problem - crime.

The problem is not simply a media creation. You know things are bad when even the estate agents talk openly about a matter that could damage the housing market.

The problem has even altered the architecture of how homes are built in the city, as a drive through the suburbs - all of them, not just the affluent ones - will demonstrate.

"Outside most homes there are electronic gates, walls, barbed wire and fences. But there's inside as well - fingerprint recognition systems, lasers and alarms that trigger off an armed security response team. It's tough here, but we're in a society where some people kill to get hold of your cell phone" says Andre Dippenaar of Pam Golding Properties.

Throughout South Africa there are 4,500 private security companies employing 300,000 guards - compare that with just 105,000 police officers. The problem is more acute in Johannesburg than anywhere else, although the government insists it will be less of an issue by 2010 thanks to increased police numbers and powers.

"It's the biggest cloud hanging over the city but the property market is getting through it. There are new complexes close to the city centre which are mixed use. They've got shops, restaurants and offices at the bottom and apartments above them. You've had them in the UK for some while but they're new to Johannesburg. Crime is very low and they're becoming very popular" says Peet Strauss, another Pam Golding estate agent.

The prime example of this kind of scheme in the city is Melrose Arch, a mixed-use development that has attracted a significant number of investment buyers. Its first 48 apartments sold out almost immediately - an unremarkable phenomenon in most places, but these were small, European-style apartments and not the large houses that have hitherto been typical in Johannesburg.

In the New Year a similar scheme, La Residence, goes on sale.

"This is all the start of something different in the city" explains Strauss. "Apartment living in the city centre opens up a brand new market."

If investors can see past the crime issue, there are likely to be good returns.

Absa house price data, South Africa's equivalent of the Nationwide index, shows annual housing inflation at 14%, down from its highs of 25%-plus in the years just after the Millennium. Rental yields in Johannesburg vary from 6% to 9% - three times those in the UK - and a new National Credit Act makes it easier for landlords and lettings agencies to check the bona fides of tenants.

Interest rates remain stubbornly high at 14%, although the majority of foreign investors buy properties outright because typical prices in Johannesburg, despite those big rises of the past seven years, are still low by British standards.

Earlier this year, Century 21 - a franchise estate agency and property consultancy operating in over 20 countries - put central Johannesburg in the 10 lowest-cost large-city housing markets along with Bogota, Mexico City and Nova Scotia.

What is different with Joburg is that its local infrastructure and national economy are both growing. Now may be the time to invest in its future.

How to buy in Joburg

there are no restrictions on Britons buying in the city;
non-residents can get 50% mortgages but it may make sense to buy outright;
transfer tax is up to 10%, applying on a sliding scale;
estate agents' fees are up to 5% and legal fees are 2%;
capital gains tax on second homes or investment properties is 25%;
check the property's condition before completing - homes are sold 'as is'.

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