Low prices on the Cape of good investments

It is an 11-hour flight from London, crime rates are high and there is national controversy over the number of overseas home buyers. Yet despite all that South Africa is a popular location for UK investment purchasers.

And the reason? Quite simple. Prices.

Cape Town and Alexander Cape in the south of the country are the most popular locations; then come Port Elizabeth towards the east, the Hibiscus coast south of Durban, and the region near Kruger National Park on Mozambique's border.

You can buy a modern three-bedroom property in a good location in the Western Cape for just £60,000, while a five-bedroom, five-bathroom villa with pool at Grahamstown on the Eastern Cape will cost £75,000. If you want absolute prime location you could pay £130,000 for a villa at Umhlanga Rocks in KwaZulu-Natal or £200,000 for a new villa with pool from which you could admire Table Mountain near Cape Town.

You can pay even less if you buy direct from an agent over there as opposed to one with a UK outlet, but it may be difficult to guarantee quality and visit properties.

The average home in South Africa costs only £52,000, even after four years of high inflation; prices of high-spec holiday homes like those above have risen 50 per cent since 2001. Latest figures from the respected Absa index show 2003 property inflation at 18.7 per cent. Meanwhile the mortgage interest rate is falling and may reach 10 per cent by the spring - high by UK standards but a 30-year-low in South Africa.

So where do you start?

Cluttons (020 7584 1771 in the UK or 0027 21 425 8989 in South Africa) is the main British estate agent marketing homes, while the UK website primelocation.com has a wide range of properties.

If you visit South Africa go to an estate agent using the Multi-Listing System which, like the original American version, obliges agents to give would-be buyers details of all properties on sale in a locality - even those on the books of rival s. This way you avoid registering with a string of firms.

Some Britons use buying agents such as Cape Private Properties (01488 668655) to shortlist properties that meet their requirements, thus making visits more cost- and time-effective. This firm charges a registration fee of 5,500 rand (about £425) plus VAT. When you buy, it charges 1.25 per cent, plus VAT, of the sale price.

Non-residents have to get government approval through the Reserve Bank for a purchase. This is normally a formality, provided credit checks are favourable, but it can take up to 14 days.

Most property is freehold. Buyer and seller use the same lawyer, chosen by the seller. The buyer pays survey, search and legal fees, scaled according to price of your new home and usually 7-10 per cent of purchase price.

As in the UK, maintenance costs for a property can be offset against rental income for tax purposes. Capital Gains Tax is being introduced for property sale profits. It is likely the first R10,000 (about £800) will be exempt, but 25 per cent CGT will be levied on the rest of the profit.

What your money could buy

One ?60,000 villa in the Eastern Cape has three
bedrooms, two bathrooms and two garages and is
on sale through Cluttons. Transfer tax (equivalent
to our stamp duty) costs about ?3,200, with
conveyancing fees, surveys and legal registration
of deeds costing ?1,400 - a total of ?64,600. Some
owners renting out install extra security alarms
too.

Expect to pay at least 20 per cent deposit; the
mortgage may cost ?550 a month. But you could
get ?350 a week for about three off-peak months
and ?550 a week for four months in high season.
Even when you take off 20 per cent for the local
lettings agency and routine maintenance, your
outgoings will be easily covered.

But remember that when you use it yourself,
return flights from London will cost between ?300
and ?550.

Country facts

· South African mortgage lenders do not take account
of proposed rental income, and a loan is based on
individual or joint salaries. Total outgoings on a
property must be 35 per cent or less of monthly
income.

· Homes repossessed by banks are auctioned quickly
and sometimes cheaply, but these tend to be
low-quality, non-holiday properties.

· Houses are selling fast - a foreign exchange amnesty
is seeing the return of offshore money, much of it
channelled into buying homes in tourist areas.

Watch points

· Many cities and towns have created residential
'dormitory' areas - these are often virtually deserted
during the day, increasing the potential for crime.

· The government is considering a limit on the value
and number of properties held by overseas owners.

· Any property to let must have private (preferably
secure) car parking - public transport throughout South
Africa is considered poor.

Contacts

UK websites primelocation.com and www.cluttons.com. Informative South African sites include www.property24.co.za/property24, www.aida.co.za and www.property2000.com.