Estate agents are seeing no change in the number of foreigners buying property in SA, although the number of investors from other African countries is increasing

Foreigner buying of domestic property appears to have settled down to a sideways movement after some years of strengthening, according to the Q2 2016 FNB Estate Agent Survey – Foreign Buying of Domestic Residential Property. It reports that 81% of respondents saw “unchanged foreign buyer levels”, 1% of respondents perceived “a lot more foreign buyers”, 9% “a little more foreign buyers”, 8% indicated a “little less foreign buyers” and 2% a “lot less foreign buyers”.

Respondents were asked to provide an estimate of the percentage of total home buyers who were foreigners. Using a two-quarter moving average for smoothing purposes, the estimated percentage of foreign buyers moved in a “narrow” range near to the 5% level over the last three quarters, moving slightly from 4.8% of total buying in Q1 2016 to 5.11% for the two quarters up to Q2 2016.

After a noticeable recovery in the estimated levels of foreigner buying from a 2% low late in 2010, the estimated percentage of foreign buyers peaked at 5.77% in the final two quarters of 2014.

Viewing foreign buying in a different way, agents were also asked if they had experienced foreign buyer numbers to have increased, decreased or remained the same. An equal percentage of agents saw an increase in foreign buyer numbers compared to those seeing a decline and the percentage of agents seeing an increase showed a declining trend since a peak reached in the final quarter of 2014 — 10% pointed to more foreign buyers, 10% to less foreign buyers, down from 16% pointing to more foreign buyers and 2% to less foreign buyers in Q4 2014.

This suggests a more-or-less sideways movement in recent times, or at least no further strengthening, after a prior strengthening trend through 2012 to 2014.

AFRICAN BUYERS

Of interest is the gradual change in the key sources of foreign buying over the longer term, with more coming from the rest of the African continent in recent years.

The share of African continent buyers of total foreigner buying of SA property declined mildly in the first half of 2016 to 27.5% from a two-quarter moving average of 31% for the first quarter of 2016. However, this is still high compared to the 8.5% of 2010.

A 2016 survey by New World Wealth supported this change in foreign buyer patterns. The South Africa 2016 Wealth Report, published by New World Wealth, notes that wealthy African citizens made up the largest share of foreign property buyers in 2015, increasing considerably since 2007. “Most of them came from Nigeria, Angola and Ghana,” says Andrew Amoils, head of research at global wealth data capturer New World Wealth. “We expect more than 10,000 African millionaires to move to SA over the next decade.”

Africans are purchasing local property for a variety of reasons, says Andrew Golding, CEO of Pam Golding Properties. “Some Africans are seeking investment properties or personal residences that provide access to an upmarket lifestyle.”

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*Other buyers mainly from Switzerland, France, China, India, Russia and UAE
Source: The South Africa 2016 Wealth Report, New World Wealth

According to the FNB survey, Cape Town remains the main region attracting foreign buyers for the first quarter of the year, with the highest percentage of estimated foreign buying at 8%.

However, using Namibia as a comparison, its estimate was significantly higher than that of SA, measuring 13% of total home buying in that country compared to SA’s 5%. This was possibly a reflection of that country’s higher economic growth rate in recent years.

BREXIT EFFECT

Although SA has never been a major residential investment destination for foreigners, foreign buying from UK residents was perceived to have been a significant source of demand.

The Brexit vote may have had a mild impact on British demand for property in SA, insofar as currency fluctuations have any impact. This is because Brexit made South African property instantly more expensive for those buyers operating in pounds following that currency’s weakening as a result of the referendum. However, part of the story has been a noticeable recovery in the rand too.

OFF PEAK

While fluctuations in the rand exchange rate, which cause movements in domestic house prices for aspirant foreign buyers, can conceivably influence foreign buyer levels, FNB attributes a global dip in property popularity as an asset class as a major influencer.

Since late-2013/early-2014, globally property has gone “off the boil”, it would appear. Using the Knight Frank Global House Price Index, a post-2008/9 recession peak in global house price growth was reached in Q3 2013 measuring 6.3% year on year. By the first and second quarters of 2015 the rate of increase subsided to 2.1% before recovering somewhat to 3.4% early in 2016.

FNB’s Estate Agent Survey points to a previous strengthening in foreigner buying of domestic residential property as having more or less come to an end.

However, the bank remains of the view that the performance of residential property globally influences its popularity as an asset class, and is the key influence on foreigner buying direction.