Buyers from other countries are now eyeing the local property market with slight caution
South Africa’s warm climate, favourable exchange rate and outdoor lifestyle have always been magnets for international property buyers, but it seems many have become cautious about investing in the country. The socio-political struggles and low growth economy are even making local property buyers hesitant about taking the property plunge.
However, it is not all doom and gloom, the experts say, as there is still some foreign interest in the country’s property market. And, with the market expected to improve after the elections, there could well be an uptick in property investment, both local and international.
So far in 2019 Lightstone data shows 1372 South African properties sold to foreign buyers, indicating the country’s strong international appeal has not completely disappeared. These purchases make up about 2.6% of the total property transfers so far this year, at an average of 457 a month.
Although a comparison may not be accurate because of seasonal waxing and waning, an average of 655 purchases were made each month by foreigners last year, 651 in 2017, and 699 in 2016, Lightstone stats show. As has been the case over at least the past five years, Gauteng is the most popular province for foreign buyers followed by the Western Cape and KwaZulu-Natal.
Echoing these statistics, Nelio Mendes, marketing manager at SAProperty.com, says foreign buying levels are currently “slightly lower” than previous years but there is still interest. “I think the drought, political uncertainty, and upcoming elections are cause for the decrease in foreign buyer interest,” Mendes says.
Richard Hardie, chief executive of Knight Frank, says: “There was a significant decline in the latter part of 2017 and the majority of 2018. Drought and land expropriation challenges were the key factors responsible for the decline. “The drought affected semigration as well as international interest.” Hardie says there was a spike in international interest at the end of 2018 and the beginning of 2019, “around the Christmas period”.
“Factors included an attractive exchange rate, relative political stability, and reduced drought restrictions,” he says. Over the past 10 years there has been growth in the number of foreigners buying in South Africa, with the bulk of these being African expats who live in the country, says Seeff Property Group chairman Samuel Seeff.
He says sales to foreign buyers are usually concentrated around the suburban areas, and the purchasers tend to buy in the R3million to R5m price range.
“The real money, however, comes from the United Kingdon, northern Europe, United States and other foreigners who invest in high-end areas such as the Atlantic seaboard.”
Seeff says foreign investment into South Africa’s property market facilitates infrastructure development with a range of knock-on economic and upliftment benefits. Added to that, foreign owners, like international tourists, spend their dollars, pounds and euros in the country.
Lightstone’s data shows that property sales to foreign buyers so far this year have totalled R1.87billion, with an average property price of R1.36m. Interestingly, while Gauteng’s sales to foreign buyers (659) outnumber those in the Western Cape (370), the latter has seen a higher average spend per property. Gauteng’s 2019 property spend by foreign buyers totals R830.37m while the Western Cape’s is R720.63m. This equates to an average property transaction of R1.26m in Gauteng and R1.94m in the Western Cape.
Seaboard a good foreign barometer
Cape Town’s Atlantic seaboard and city bowl areas are the Western Cape’s most popular suburbs for foreign property investment, and while some real estate groups report a decline in foreign purchases in these areas, others say there has been an increase.
The Atlantic seaboard is an “important barometer” for the level of foreign, and wealthy South African, buying and investor confidence in the country and its property market, says Ross Levin, director for Seeff Atlantic seaboard, Waterfront and city bowl.
“It is always good to look at what is happening on the Atlantic seaboard as an indication of overall sentiment.” Unfortunately, there has been a “notable decline” in foreign sales as a percentage of total sales, he says. There have also been declines in the number of properties bought by foreigners here and the amount they are spending.
Furthermore, there has been an increase in the number of foreign owners putting their properties up for sale. Glenda Luitingh, branch manager Jawitz Properties Cape Town CBD and Atlantic Seaboard, says Propstats data shows sales to foreign buyers have decreased in the Atlantic seaboard and city bowl since 2017.
“The stats show the percentage of units sold to foreign buyers in the Atlantic seaboard during January and February decreased from an average of 16% in 2017 and 12.1% in 2018 to 6.85% in 2019.
“The same January and February sales figures for the City Bowl show a similar decline in foreign property purchases, from an average 12.15% in 2017 to 7.05% in 2019.”
However, while acknowledging that last year saw a decrease in international buyers, Pam Golding Properties’ Andrew Golding says this year has seen a recent uptick of sales to international buyers on the Atlantic seaboard. In the southern suburbs, foreign buyers are “cautious”, says Pam Golding Properties’ area manager Lindsay Beck, but there is still some interest as a result of the foreign exchange rate.
“The top-end, for example, Bishopscourt and Constantia Upper, remain attractive to foreign buyers. We are seeing more European interest, particularly from Dutch, Danish and German buyers.” The Blouberg beachfront area is also a favourite spot for foreign buyers, says SAProperty.com’s Nelio Mendes. Knight Frank’s Richard Hardie says key spots are Cape Town, the Winelands, Coastal Garden Route towns such as Hermanus and Plettenberg Bay, and rural towns such as Prince Albert in the Karoo.
Industry players report that selling to emigrate is on the increase
While South Africa still carries certain appeal for foreign property buyers, some South Africans are being lured to other countries. The appeal of emigration continues to grow as a result of the country’s economic and political instability and is being noticed by real estate agents tasked to sell the properties of those leaving South Africa.
“There is an increase in the number of people looking to sell due to emigration,” says Seeff’s Samuel Seeff. “Those who hold additional properties are looking to consolidate their portfolios and only keep what they need to, while many are selling their primary homes and are looking to secure a foothold elsewhere. This includes many who are selling their family houses.”
SAProperty.com’s Nelio Mendes is also seeing an increase in the number of people selling to emigrate. Furthermore, he says this figure is higher than in previous years.
Most sellers emigrating are young couples, IT specialists and advertising executives, and most are selling freehold homes. There are also apartments on the market due to emigration. An increasing number of South Africans who are emigrating are choosing to retain their properties though and opt for second citizenship, says Knight Frank’s Richard Hardie
South Africa appeals too many nationalities
South Africans may be looking to emigrate in growing numbers to countries such as the UK, New Zealand, Australia and other European countries, but many of those locals are looking to own homes in South Africa. Property statistics indicated the most foreign property sales are to buyers from:
- European countries such as the UK, Holland, Belgium, France, and Switzerland
- African countries such as Ghana, Zambia, Nigeria, Botswana, and Zimbabwe.
Same rules apply for all purchasers
South Africa’s constitution does not place restrictions on foreign property ownership, but these buyers are subject to the same exchange control and regulations applied to South Africans, as well as a few others, says Seeff’s Samuel Seeff.
- Mortgage loans are restricted to 50% of the property purchase price
- Foreigners are subject to the same transaction costs as South Africans, including paying transfer duty on the price above R900000 as well as other costs of transfer and bond registration
- There is no minimum holding period and foreigners are free to buy, sell, or rent their property and can repatriate 100% of their profits after legal deductions
A second home escaping the cold
Most foreign buyers of South African property opt for second homes for holidays or retirement, says Doug Gurr, a Pam Golding Properties agent in Franschhoek. “Foreigners buy in Franschhoek because of the cosmopolitan, European feel of the region.”
Their homes range from apartments to smallholdings. Basil Moraitis, Pam Golding Properties’ area manager for the Atlantic seaboard, says international buyers tend to prefer secure apartment living.
Beachfront apartments are popular for investment purposes as well as holiday homes when they travel to South Africa, says Nelio Mendes of SAProperty.com Knight Frank’s Richard Hardie says most buyers look for second homes to use when escaping European winters. “During the South African winter they rent out the property or lock it until they return.”
Declining interest in the seaboard and CBD
Foreign demand for property in their favoured Atlantic seaboard and city bowl has declined, with statistics confirming this trend, says Seeff’s Ross Levin.
So far this year only 10 foreign sales have been recorded with three sales to foreigners in the CBD, two in Sea Point, and one in Vredehoek.
Even the high demand areas of Camps Bay, Fresnaye, Mouille Point and Clifton have only seen one foreign sale each in 2019, Levin says. Data for previous years show:
- 2016: 165 foreign sales United Kingdom 23.64%, Germany 16.97%, United States 6.67%, France 7.27%, Switzerland 4.85%, China 3.03%
- 2017: 106 foreign sales United Kingdom 19.81%, Germany 13.21%, United States 5.66%, France 4.72%, Zambia 4.72%, Switzerland 1%
- 2018: 87 foreign sales Germany 24.14%, United Kingdom 22.99%, United States 11.49%, France 6.90%, China 4.60%, Switzerland 1.15%, Zambia 1.15%