How to Invest Real Estate Stocks in South Africa?

Dec 13, 2023

Whenever we think of investing in real estate, the only thought that comes to mind is owning our property or residence. But in the 21st century, the meaning of real estate investment has changed a lot.

Could investing in property be a lucrative venture for you? Is there a way to invest in real estate that fits our lifestyle? This article will prepare you for your adventure in Property Investment.

So, is investing in real estate in South Africa a great idea in 2024?

Market Size (2023): USD 18.01 billion.

Projected Market Size (2028): USD 29.61 billion.

Expected Growth Rate (CAGR): 10.46%.

Market Entry: 15.6 million South Africans (first-time buyers + existing homeowners) aged 20 to 34 create a potential market.

Average Residential Real Estate Cost: Residential properties in South Africa can cost up to an average of R1.6 million, depending on location.

City-Specific Insights: Cape Town, one of South Africa’s capital cities, has high property costs. Johannesburg experienced reduced housing prices but still above one million South African rands.

Rental Market Trends: Mpumalanga saw the greatest growth in rents, while the Western Cape had the highest rents in the rental market.

Source : Mordor Intelligence

What is real estate investment?

Food, clothing, and shelter are basic human needs that every living thing on this planet requires. Everyone needs a roof to cover their head. That’s why! Real estate is not only a safer investment option but also profitable for long-term income.

Note: There is one thing that is important for you to know about investing in real estate in South Africa. When purchasing a property or home to live in, it is not considered a real estate “investment.” This is called shelter, which is a necessary purchase to survive and cover your head. Its value will also increase with time but still, it cannot be considered a financial product from which you expect returns.

To generate long-term income, you can money invest in numerous ways like buy-to-let property investment, renovating properties, or finding the best deal by getting inside information of the property market.

How does real estate investment work?

Investors in South Africa buy, sell, and rent properties to make profits from real estate. Investors buy an undervalued property, renovate it, and then either rent the property out or sell it at a higher price. This business happens not only with residential properties but also with commercial properties (warehouses and offices).

However, in the new world, many real estate investors now invest capital in the real estate market via stocks like Real Estate Investment Trust or “REIT” or Real estate investment groups (REIG).

Wants to start investing in real estate in South Africa? Ways to invest:

  1. Buy a property
  2. Flip a property
  3. Buy residential rental property
  4. Buy commercial real estate
  5. Buy vacation property
  6. Invest in real estate investment trusts (REIT)
  7. Buy land
  8. Issue a private mortgage

How to start invest in real estate for passive income in South Africa?

Investing in real estate can be a good idea to earn more money. But as easy as it may be to say, it can often be difficult to process too. There are many different factors that beginner investors should consider such as your goals, current financial situation, and current market conditions.

How to Create a Property Portfolio Step-by-Step in South Africa: Beginner Guide and Strategies

Determine your goal: Don’t jump into it blindly! What do you want from real estate investing? Your goal should be specific, attainable, relevant, time-bound, and measurable.

Know the experiences of experienced investors: Less knowledge is like poison! Real estate investing is difficult but not impossible. To know the property investment realities, discuss with an investor with years of experience and get advice on all aspects. This will escape you from many difficulties during initial investment and can give you success in trials.

Become familiar with the market first: Evaluate historical housing market trend data to understand current real estate trends. The real estate market is considered a cyclical industry, where changes or recessions are expected. Which investments are good and how much and how quickly they will rise or fall are all influenced by demand and supply economic trends.

Know your target audience/customer: Target audience refers to the demographic that you will be renting your property to. To attract customers, the location and type of property plays an important role. For example, if you as an investor prioritize students, it is important to understand the needs and values of this demographic.

Find the right location: It is important to select the right location before investing in properties. South Africa has provinces and cities like Cape Town, Johannesburg, and Mpumalanga where property/house prices are low but there is great potential for new investors to succeed. When considering locations, it is important to estimate details such as the economic, employment, educational, and environmental conditions of the area.

Find the right property: The most stressful task for the start-up investor! “Potential for appreciation” is the first and most important characteristic of any property. Choose a property for investment that has the potential to increase in value over time. A property with minor cosmetic changes or renovations is cheaper but has great potential for a higher price.

Arrange your finances – Buying a property for investment purposes is a huge task as it will also affect your current financial situation. Not every beginner needs to have finances. What’s more, even small cash loans like short-term loans, payday loans or installment loans may not help you to start investing in real estate. Many investors in real estate make their primary residence their initial investment because home equity loans have low-interest rates and are also tax-deductible. Our suggestion for learner investors, get a mortgage on primary residence is not a good idea.

Note: Real estate investment is for people who have some spare cash that they can use flexibly.

Commercial vs. residential real estate investing: The most important of all decisions is, which real estate you would like to invest in – residential or commercial. Both investments have their benefits and challenges, consider them carefully.

How small investors are making passive income from real estate in South Africa?

You might have often heard a financial guru on YouTube or a blog saying “Real Estate Investment as a Source of Passive Income”. Earning passive income from real estate means buying a property that can be rented out. Whether the property is residential or commercial, you collect income in the form of rent every month from the tenant.

However, being an experienced investor myself, we can tell you that owning a property is an active element. You have to take care of many things and deal with various issues in the rental property.

REITs allow small investors to invest in income-producing properties without buying ownership or huge finance arrangements. If you want to own real estate in South Africa and earn passive income from it, the easiest way to do so is through a Real Estate Investment Trusts (REITs). REIT is a company that trades in the stock market just like a stock. It manages, owns, or finances income-producing real estate for you. That’s why, REITs are very popular among small investors.

REITs allow small investors to invest in income-producing properties without buying ownership or huge finance arrangements. Small investors make money through rents and property appreciation in South Africa. In return, investors pay a small monthly dividend of 2% to 7% to the REIT companies.

Top 10 Real Estate Investment Companies – Best REIT in South Africa

1. Growthpoint Properties

  • Revenue: 13.74 billion
  • Market capitalization: 37.22 billion
  • Price/Earnings (2023): 15.78

2. Redefine Properties

  • Revenue: 9.53 billion
  • Market capitalization: 25.81 billion
  • Price/Earnings (2023): 3.33

3. Hyprop investments

  • Revenue: 4.39 billion
  • Market capitalization: 11.73 billion
  • Price/Earnings (2023): 7.77

4. Fortress Real Estate Investments

  • Revenue: 3.79 billion
  • Market capitalization: 22.17 billion
  • Price/Earnings (2023): 2.15

5. Resilient Reit

  • Revenue: 3.73 billion
  • Market capitalization: 14.55 billion
  • Price/Earnings (2023): 4.69

6. Vukile Property Fund

  • Revenue: 3.65 billion
  • Market capitalization: 13.82 billion
  • Price/Earnings (2023): 6.77

7. Equites Property Fund

  • Revenue: 3.21 billion
  • Market capitalization: 9.77 billion
  • Price/Earnings (2023): NA

8. Attacq

  • Revenue: 2.25 billion
  • Market capitalization: 6.08 billion
  • Price/Earnings (2023): 8.58

9. Investec Property Fund

  • Revenue: 1.82 billion
  • Market capitalization: 5.83 billion
  • Price/Earnings (2023): 29.89

10. Stor-Age Property REIT

  • Revenue: 1.07 billion
  • Market capitalization: 5.98 billion
  • Price/Earnings (2023): 8.32

How much do i need to invest in property in South Africa?

With REITs a deposit of R35 000 can even secure you a property of approx R1 million, and R18 800 can put a property of approx R550 000 at your door. REITs give you opportunities to invest entire South Africa.

Can I invest in property with no money in South Africa?

Yes, it is possible to invest in real estate with little or no money by partnering with an equity partner. An equity partner is a person who helps you finance a property that is priced out of range.

How can I join a REIT in South Africa?

To invest in a Real Estate Investment Trust (REIT) in South Africa, open a brokerage account, fund it, choose a REIT, and buy its shares. Regularly monitor your investment and consider seeking professional advice for strategic decisions.