Property Talk

The events surrounding the President's State of the Nation address in parliament has made headline news over the past week. Of interest to property practitioners were the President's comments relating to the intention to restrict foreign ownership of land. Several cries of protest erupted from many leading figures in the property industry. Often branded as "political talk" the government's recurring sentiments expressed on restricting property ownership for foreigners in some way or another has to be analyzed in terms of how significant the current foreign ownership of property is in South Africa and if these restrictions would provide for any positive outcome.

Although the wording to date from the Presidency and as reported on in the media, specifically refers to land ownership restrictions rather than all categories of property ownership, we can assume that if any restrictions are eventually successfully imposed, these could translate to residential and commercial properties, rather than just land. Many commentators have correctly noted that the biggest threat from comments made by the Presidency on restricting foreign ownership of property is the lack of policy certainty from government and adds to the political risk element faced by the investment community. Investment decisions are based on confidence. Anything that undermines confidence can potentially negatively impact on investment decisions.

The myth that foreigners somehow buy the most expensive properties in South Africa and crowd out local South African buyers through bidding up the price of properties, which appear very cheap to them in foreign currency terms, should be discounted at the outset. The level of foreign ownership of South African residential property is estimated by data service provider Lightstone to be approximately 3%. The headline prices are typically paid by South African buyers who understand the local market nuances and characteristics, whether it is in Zimbali Coastal Resort or along the Atlantic Seaboard in Cape Town. According to a report released by Seeff national Chairman, Samuel Seeff, the two highest prices ever paid for residential property were both South African bought. A Capetonian paid R190m for a Clifton apartment in 2013 and a Pretoria businessman paid R113m for a penthouse apartment at the One & Only at the V&A Waterfront. Of the 51 most expensive properties sold last year along the Atlantic Seaboard, only 8 were sold to foreigners.

FNB's recently published report on Foreign buying of domestic residential property, provides an interesting insight into the key drivers of foreign buying. There is no doubt that South African residential properties have become a lot cheaper when designated in foreign currency. When compared to 2010, the FNB House Price Index is down by -17.6% in Euro terms, -23.2% in US Dollar terms and by -23.3%in Pound terms. It is however not all driven by lower relative prices, as we have seen that foreign interest has increased over the past few months even though the Rand exchange rate has been relatively stable over this period.

FNB report that the underlying popularity of property as an investment asset class globally is what is driving the current demand. The most recent estimate put out by FNB from their estate agent survey is that 5,5% of total home buying is attributed to foreigners. They however do not take into account foreign selling so the net effect is closer to the 3% estimate provided by Lightstone. This level of ownership in a market is not significant enough to be able to drive pricing on average and does not provide a compelling argument to want to restrict the ownership of property by foreigners.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com