There is a perception that property is a good investment delivering healthy returns over time. A bonded property requires that the property owner practices financial discipline and makes regular monthly repayments with the end result being a fully paid off asset. Depending on the property cycle when the property was acquired, that perception has held true for many property owners.

However, higher interest rates, a sluggish economy, political uncertainty, municipal service failures and local government governance issues have impacted capital growth in the housing market in many parts of the country with the result that those investing in the local property are having to weigh up whether it really continues to be a viable asset in the current environment.

Municipal service failures are reflecting in crumbling infrastructure, including in water and sanitation. A number of municipalities have defaulted on their electricity bills, jeopardising residents’ access to power. Poor service delivery and a lack of confidence in local government is having a knock-on effect on property resale values.

Independent property valuation firm Rode & Associates says property prices have shown almost no real growth for the past seven years and predicts that real house prices in South Africa will continue to decline for another few years. Rode’s State of the Property Market Report for the first quarter of 2023 says house prices in South Africa are deflating in real terms as a result of the sharp rise in the prime interest rate to 11.25% by the end of March 2023 from 7% in October 2021, as well as a declining economy.

South Africa is currently about halfway through a 15-to-20-year cycle of declining house prices in real terms and there is still some way to go, says Rode & Associates CEO Edwin Rode. He maintains that it could take another seven or more years for the South African property market to return to real growth.

Financial advisor and founder of Brenthurst Wealth, Magnus Heystek, has been quoted as saying that the facts all point to the reality that the property market, especially at the top end, has collapsed. Properties around the country – with the exception of the Western Cape - are taking longer to sell and when they do sell they are usually 20% to 25% lower than the initial listing price, he says, adding that properties priced between R1.5 million to R5.00 have declined by 30% in real terms. 

The one exception to the stagnating house prices trend is in the Western Cape where semigration has fuelled property prices. However, even the Western Cape is facing some red flags when it comes to property ownership.

It is well known that property investors are looking beyond South Africa’s borders for more stable and better-run property markets.  Although the Western Cape has to date largely been immune from the slowdown and stagnation in the property market, investors are spending less with the top value of properties being sold slowing down even in the Cape Town Metro, according to property experts. The situation is even more dire in Johannesburg, including the upmarket hub of Sandton, where the upper price limits of properties have stagnated.

Hartwieg du Rand, owner of a number of Harcourts franchises in South Africa and a director of Harcourts Offshore in Mauritius, attributes this to low levels of confidence from investors in the local property market.

“Given that house prices are rising at a lower rate than inflation, property in South Africa no longer provides the returns the asset class once enjoyed. South Africans need to start thinking about diversifying their investments internationally with a healthy allocation to dollar-denominated assets, irrespective of whether or not they plan to leave the country,” he says.

A compelling investment alternative for South Africans is Mauritius. The island nation enjoys social and political stability and robust GDP growth compared to South Africa. In 2022, real GDP growth rose to an estimated 8.7%, up from 3.4% in 2021, spurred by sustained policy support and the lifting of travel restrictions post the Covid-19 pandemic which buoyed the recovery of the tourism sector. The country’s monetary policy has remained accommodating to support economic activity. Although its economic growth is expected to slow to between 4.5% and 5% in 2023, this figure remains significantly higher than South Africa’s sluggish GDP growth of well below 1% for 2023.

When it comes to property investments, Mauritian government regulations limit property acquisitions by non-citizens to specific schemes, including real estate schemes, integrated resort schemes and property development schemes. In 2013 the Mauritian government launched the Smart City Scheme to support the island country’s economic growth, the development of innovative and smart projects and better-planned urbanisation. A mixed-use property development programme, it incorporates office, residential, commercial, educational and medical spaces as well as a leisure component. Non-citizens are permitted to buy land in Mauritius for residential purposes through this smart city scheme with investors who make a minimum property investment of US$375 000 (approximately R7.2 million) receiving permanent residency in Mauritius.

A flat corporate and trust tax rate of 15% and a double taxation avoidance agreement with South Africa and more than 40 other countries is a compelling proposition. Mauritius also does not impose taxes on capital gains or dividends. Personal income is subject to a progressive tax system with the highest income tax rate capped at 20%, compared to South Africa’s 45%.