Strong rand hits property sales to foreigners

Published Aug 4, 2011

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Roy Cokayne

The level of foreign buying of South African residential property was at an anaemic 3 percent of total buying in the second quarter, FNB Home Loans said yesterday.

However, FNB Home Loans strategist John Loos said this was not quite taken as heralding negative sentiment by foreigners towards the country.

Foreign buyers accounted for about 2 percent of total sales in the latter half of last year, compared with 7 percent in early 2005 and 6.5 percent at a stage in 2008, Loos said.

“However, we don’t believe poor sentiment towards South Africa is currently a key issue.

“Weak foreign buying is more likely to be related to a combination of improved foreign sentiment towards South Africa in recent years but a deterioration in sentiment towards the property asset class globally,” he said.

Pam Golding Property Group chief executive Andrew Golding said research done by his group indicated the overall quantum of foreign buyers who had purchased residential property in South Africa at any stage in the past 10 years had been widely overestimated.

At most 1 percent of the residential property inventory sold in any given year was bought by foreigners and since the downturn in the market, there had been a significant drop in these sales, Golding said.

Sales by the Pam Golding group to foreigners peaked at about 7 percent of the total and dropped to its lowest point two years ago at about 2 percent.

However, the company had seen a gradual increase since then, he added.

“The German market fell off before the global economic meltdown. It used to account for 40 percent of our foreign market but that just disappeared.

“Many of those foreign markets have not really recovered and we are not seeing a significant number of German buyers any more,” he said.

Golding agreed that the reticence of foreigners to buy second or third homes in South Africa had nothing to do with negative sentiment and perceptions about the country.

He said South Africa had always been a marginal destination choice for investors in residential property because of its long haul nature compared with France or Spain and the potential political uncertainty. The strength of the rand had further exacerbated the issue.

The UK and the rest of Europe was the traditional foreign buyer’s market for this group, Golding said, but there were new foreign entrants to the market from Africa who were either high net worth foreigners or African corporate relocations, and African individuals whose children were being educated in South Africa.

An increase had also been recorded in Chinese and Indian purchasers, who were using South Africa as a springboard and gateway to business in Africa, he said.

“Roughly speaking, what we lost in the traditional European market we have probably gained in the African, Indian and Chinese market.”

Rather than blaming weak sentiment towards the country, Loos believed significantly higher local property prices for foreigners along with property not being a hugely popular global asset class at present had conspired to curb foreign demand in the property market.

He said the rand-denominated FNB house price index had risen since the beginning of 2009 until last month by a meagre 8.5 percent. In the same period in UK pound terms it had increased by a massive 47.5 percent, in euro terms by 50.6 percent and in dollar terms by 59.9 percent.

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