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Returns or rand: What’s important to South African property investors?

Returns or rand: What’s important to South African property investors?

Despite a growing housing market, South African investors are seeing overall loses due to the weakness of the rand.

Summary:

  • Growth in the South African property market is being drastically undermined by the weakness of the rand
  • As the rand’s devaluation continues, investors are looking to overseas markets
  • The UK property market is favoured among South African investors because of the underlying strength of sterling

Property investment gains in South Africa are being largely undermined by the rand’s weakness on the forex markets.

After a sustained decline, the housing market in the country is now performing well, offering investors higher returns than they can get elsewhere in South Africa, but the rand’s continued slide makes any ROI devalued in international terms.

Despite house price growth of over 20% in the past four years, in dollar terms, the value of real estate in South Africa has declined by 23% over the same period due to a 64% currency devaluation.

It’s a situation that is not going to improve anytime soon for South African investors. Even in cautious trading this week, a surging US dollar powered by better than expected consumer inflation data and the likelihood of a Fed interest rate rise, has seen further devaluation. By 1425 GMT on Monday (June 22nd) the rand was trading 0.56% weaker at 12.43.

Today, South Africa’s own consumer inflation data for June will be released, but its importance will be fairly forgotten when a decision on interest rates is made tomorrow in the US.

Although the current economic conditions in South Africa make property investment attractive for overseas investors, domestically many investors are looking for an international hedge.

Traditionally, UK property has been used by many global investors and now South Africans are looking to diversifying into the British market.

As well as the high capital appreciation and strong yields on offer in the UK private rented and student sectors, returns are sterling-based, meaning they are largely resistant to forex volatility – exactly what South Africans require.

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