Lucky investors who snapped up properties at the start of this decade have cashed in on an almost guaranteed lottery win, as prices soared across the country, taking the average price of a new home to over R1 million (a little over £68,000) for the first time, with prices for existing homes only slightly under that mark.

Buying in South Africa

At its peak in 2004, the price of an average property increased by more than 30%, giving South Africa the world’s fastest rate of house price growth. Of course, it couldn’t last forever—and in 2008 the pressure valves opened to let out some steam.

Meanwhile, investor confidence has taken a knock. The FNB Residential Property Barometer, a quarterly indicator based on the market sentiment of 150 real estate professionals, hit its lowest recorded level at the end of the June. In a report, the bank noted that properties are now viewed for an average of 15 weeks before selling, far above the time taken at the peak of the market

Investors looking to get into the market are advised to hold tight until 2009, when the market is expected to bottom out and good deals will start to emerge again. Not much growth is likely before 2010, although buy-to-let investors will probably experience stronger rental demand during this time. Even so, rental income remains relatively low for landlords.

Average house prices

Eastern Cape     R865,458
Free State     R733,256
Gauteng         R1,032,773
KwaZulu-Natal     R871,454
Limpopo         R806,376
Mpumalanga     R823,191
North West     R784,493
Northern Cape     R663,376
Western Cape     R1,090,778
Source: ABSA housing review, Q2 2008

Renting in South Africa

In May 2008, the average yield for a R1 million home was 7.1%, indicating a monthly rental of about R5900 (about £400).

“At present, renting may seem a better option for some,” says John Loos, a home loans property strategist for FNB. “Given the currently low yields that exist in the rental market, generally a tenant will have lower monthly payments than an owner paying off a 100% loan on the equivalent property.”

According to FNB, rental demand in the second quarter of this year was 43% higher than it was six months earlier.

The bank’s research shows that Johannesburg costs more to rent in than any other of the country’s main cities.

Average rent prices

The average monthly rental cost of a mid-range house in Johannesburg is now about R7,250. Cape Town comes closest in price, touching on R7,000 a month, while Pretoria offers the best value at just R4,850. Back down at the coast, Durbanites can expect to pay R5,800.