Property professionals in South Africa have felt keenly the confusion and concerns that were raised when President Jacob Zuma, in his 2015 State of the Nation Address, announced proposed restrictions on foreign land ownership.

Pam Golding Property Group CEO Andrew Golding later stated his misgivings about the government’s subsequent announcement that the restrictions would apply only to agricultural land. This latter announcement made limited headlines, thus cementing the international property investment community’s doubts on the matter.

What would be the impact of such restrictions? Says Bill Rawson, chairman of the Rawson Property Group, “What makes the case for restricting foreign ownership particularly illogical and misguided is that the South African government recently published economic revival plans in which it stated clearly that the encouragement of foreign industrial development will be a key part of their strategy for the next few years. How can you invite foreign investors to be fully involved in South African business without also giving them the right to own business premises and a residence of their own?”

So, why would the government introduce such measures in the first place? There may be something to the idea that by restricting foreign ownership of agricultural land, local farming will increase, the price of agricultural produce will come down and more citizens will benefit from the lower costs.

This view, however, is far from accurate: the amount of land owned by foreign citizens in South Africa is a negligible 3% a year.

Says Seeff chairman Samuel Seeff, “We have on numerous previous occasions drawn attention to the fact that we see the attempt by the government to limit property ownership as counterproductive and a move that, rather than advancing the redistribution of land, is likely to dampen investment and further inhibit economic growth. It assumes that foreign-property ownership has in some way had an impact on the market, either in terms of the volume of property and land that they own or the prices that they pay and, of course, there is no proof of either. The highest prices paid in the country have also been by South African buyers, thus quashing that argument.

Also under discussion is the constitutionality of such a restriction on land ownership, as it would limit owners’ right to sell their properties. Says Berry Everitt, MD of Chas Everitt International Property Group, “Gugile Nkwinti, the minister for rural development and land reform, believes that the constitutionality of the bill will be tested when it goes to Parliament later this year. But it is likely to face challenges both before and after that, and at some stage could well be ruled unconstitutional by the Constitutional Court.”

There is always the possibility that the issue of constitutionality may not be enough to halt a similar bill being proposed in the future. Says Rawson, “Tony Leon, formerly the DA party leader and lately South Africa’s ambassador to Argentina, in a recent speech at a Rawson Auctions Western Cape function, warned that the clause in the constitution guaranteeing secure property ownership – with expropriation possible only when valid compensation is paid – was agreed to very reluctantly by many members of the ANC at the time the constitution was being drawn up, and in Leon’s view, this clause is now under threat.”

South Africa is not alone in restricting foreign land ownership. Many countries have successfully limited foreign land ownership and have done so without harming the property industry. Says Herschel Jawitz, chief executive at Jawitz Properties, “There are countries such as Mauritius which do limit foreign ownership and have done this successfully without necessarily discouraging foreign ownership;  however, the key will be the clarity of implementation of the policy of which the government generally has a very poor track record. The sooner the details of the limitation and how it will work are communicated the better it will be for everyone.”

And while the restrictions may apply to agricultural land only, their impact will be felt in other sectors, for example, tourism.

Says Seeff, “Consider for example that it was foreign investment that ignited the wine industry in the late 1990s and early 2000s. It was foreigners who bought up the old run-down wine farms, renovated them and turned them into world-class tourism products and wine producers that now rank among the best in the world. Aside from the wine farms’ being top tourist attractions and wine producers in their own right, the wine industry has also given rise to a host of tourism products, routes and even the development of towns.

“Think, for example, of Franschhoek, which is a gourmet capital that is abuzz almost every weekend with visitors from across the globe who not only visit the wine farms, but also frequent the many restaurants, buy goods from the boutique stores and stay in the hotels and guesthouses. It has also boosted the real estate industry: Franschhoek is a sought-after address and has seen enormous property growth over the past decade, and all of this has boosted the economy.”

Is there anything that can be done? Says Derek du Toit, director: north, at the IEASA, “It is uncertain what the rationale is behind the concept, but in the interim and for future reference, foreign buyers can register a local company as the buyer and simply have a shareholding in that company. This is the route that is being followed, as it provides for major tax incentives in both countries.”

The consensus remains that limiting foreign property ownership in South Africa will see foreign investors think twice before considering the country as a property investment destination. With an economy that shows very little growth, this move leaves more questions than answers, and given the government’s less-than-stellar record in implementing and streamlining such laws, the future of foreign property investment is on shaky ground.

 

Words: Angelique Redmond