Property Talk

Foreign Property Investment

We typically think of our high-end properties in South Africa, whether these are along the Atlantic Seaboard, Plett or in Zimbali, attracting foreign buying interest and that a high percentage of these transactions are due to foreign buying.

Although the percentage of foreign buying along the Atlantic Seaboard is far higher that in any other regions of South Africa, the incidence of foreign buying in Zimbali and Plett are lower than what is typically thought. Our experience in Zimbali is that the high-end homes are often bought by local South African buyers who are based in Gauteng.

To get a better understanding of the actual incidence of foreign buying in our residential real estate market the recently published report by FNB is a good guide and source of information. In their estate agent survey the estimated number of foreign buyers for the two quarters ending 2017 was 3.96%.

This is marginally down from the 3rd quarter of 2017's 4,1% and more significantly down from the 5,8% recorded at the end of 2016. Although the drought conditions in the Western Cape have become more extreme recently, the impact on the buying behavior of foreigners is unclear at this stage.

The estimated foreigner home buying in Cape Town has declined from 8,9% at the beginning of 2017 to an estimated 5,5% by the end of 2017. The main reasons provided by FNB for this decline to date relates to the weak sentiment amongst the investor community, the weak economic performance and the lack of political policy direction.

The international rating agency downgrading of our Sovereign Debt to junk status also contributes to less demand for our local residential properties by offshore buyers. The FNB Foreign Home Buying Confidence Index had its strongest positive level at the end of 2014. Since 2015 however this indicator has fallen in 5 of the past 7 quarters.

Another interesting stat that FNB measure is the level of expat South African buyers of local property. In the final quarter of 2014 the estimated level of expat buying was 2,65% of total home buying. By the 4th quarter of 2017 this measure was down to an unimpressive 1,47% of total buying.

The FNB Expat Home Buying Confidence Index has been in negative territory for the past 6 quarters indicating the South African expats living abroad have held a very dim view of our current affairs over the past 18 months.

The gradual weakening of foreign interest in our residential markets over the past two years is in line with our multi-year economic stagnation. However the good news is that 2018 has started with a new wave of optimism with the change in leadership within the country's ruling party. Improved economic sentiment may well encourage renewed foreign interest.

The Western Cape's drought conditions have the potential to severely impact on future foreign buying in that region should this year's winter rains not alleviate the situation.