South Africa Property Fund Overview

An increasing number of our readers are interested in spreading, diversifying and reducing their overall risk of direct exposure to certain property markets and one of the most talked about of these markets is the South African real estate sector which offers potentially lucrative returns over the longer term, but which could suffer the slings and arrows of outrageous fortune in the form of short term knocks and destabilising over-reactive behaviour.  This article therefore provides a South Africa property fund overview with the angle of a comparison to direct market exposure for our interested readers.

Looking positively at South Africa one can see an emerging nation that is developing tourism, working to reduce crime and poverty levels and actively participating in international economic and political life in a bid to develop a stable nation.  It is a country rich in natural assets and beauty, one that has a growing economically advancing middle class, a country where more businesses are establishing operations, where foreign direct investment is quite strong and where there is a very broad demand for property.

Looking more negatively at South Africa from a property investor’s angle one sees a nation where the 40% annual gains that made its residential real estate market world famous are gone, the affordability that drew many overseas buyers has been eroded, a global trend for seeking lesser risk investments is intensifying and ultimately there has been a deterioration in outlook relating to both the inflation and interest rate fronts meaning that more people are nervous of directly entering the property markets in South Africa and exposing their personal capital to an illiquid and volatile asset class.

But as stated – there is a very broad demand for property in South Africa which means that there is potential for a property investor: -

The demand for residential property for sale in South Africa comes from both its white and black citizens who make up the aforementioned affluent middle classes, it comes from tourists seeking property rental, it comes from international businesses looking for short and long term corporate lets, it comes from migrant professionals in the major cities, it comes in part from a strong overseas interest in holiday or retirement homes in South Africa and there is also an incredible demand for basic housing for the poorer citizens of the nation who have a right to accommodation but who are suffering from the fact that there is a large deficit of affordable and state housing.

The demand for commercial property in South Africa encompasses the retail, office and industrial sectors and the sectors’ successes are firmly embedded in the fact that the South African economy is expanding in a constant and currently sustainable way.  There is an additional factor that could push up value, cost and yield in the commercial property market and that is the constraints affecting the expansion of the sector.  Basically the cost of land in South Africa is rising especially in and around the main commercial arteries of the nation which means that fewer commercial building projects are coming online which will ultimately restrict supply.  Additionally the government of South Africa is currently re-zoning and reclassifying land and this could have a negative effect on commercial developers seeking new and affordable sites for development as land for commercial use is likely to be in short supply in the most popular and profitable areas.

So the question is: how can and should an investor tap into this great demand for property in South Africa to achieve gains and yields but at the same time limit direct exposure to negative corrections and fluctuations and overall risk…?

The answer increasingly seems to lie in the form of listed property or property funds in South Africa. 

From the real beginnings of the property fund market in South Africa back in 2001 when there were 4 choices for an investor, the number of funds available to investors today has risen to 24, and of the funds available there are a number of fantastic, well researched and managed options that offer great diversification, low entry levels and strong yet seemingly sustainable returns.

The popularity of property funds in South Africa is evident in the findings of the Association of Collective Investments which recently showed that the amount committed directly to real estate funds had risen from 1.3 billion Rand in 2001 to 15.6 billion Rand in 2006 – but ultimately an investor must remember that while listed property will offer him diversification through the fund’s ownership of a broad array of underlying assets, the factors affecting South Africa and its real estate market can still impact property funds. 

All of this means that those looking for the lowest risk approach to this potentially lucrative market have to be prepared to commit for the long term and be comfortable riding out short term extremes of movement whether they commit directly or they take a circuitous approach to property investment in South Africa.

Special Reports: Property News for South Africa

South Africa Property Investment Potential
Property investors in South Africa have great choice and potential therefore property investment in South Africa is an attractive proposition

South Africa a Guide for Property Investors
South Africa is an incredibly popular, relatively low risk prospect for property investors seeking wide market choice and steady gains.

South Africa Purchase Process for Real Estate
Buying investment property in South Africa involves a straightforward transaction and an international investor’s rights are well protected throughout