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Foreign property buyers more interested than 40 years ago

MAIN IMAGE: Dr Andrew Golding, Chief Executive of the Pam Golding Property Group

The effects of the Covid-19 pandemic have had an impact on the property industry all around the world – with the South African property business part of this new reality. But, as we will discover over the next few weeks, not all is bad news. We spoke to a few experts in the industry to hear first-hand what the influence of Covid-19 has had on international property investors.

What made the local market more attractive for foreign investors, is the burgeoning pre-Covid tourism industry, the lowest interest rates in 50 years and a wide offer of properties in various sectors, regarded as profitable investments.

Dr Andrew Golding, Chief Executive of the Pam Golding Property Group, agrees that the South African real estate market remains attractive to foreign buyers.

“During the lockdown period we have continued to receive enquiries from international buyers from approximately 40 countries around the globe. These include the UK, Germany, Zimbabwe, USA, Netherlands, France, China, Portugal and Italy among many others, for properties in various regions around the country.

“In fact, in the Cape Town metro, we have seen more international buyers in the last year than any time over the last five years – in some cases committing to a purchase sight unseen, especially at the very top end of the market. Our recent sales in the luxury sector of the market include a home in Constantia which was sold for in excess of €2 million (R34 million at current exchange rate) to an international buyer, and a V&A Marina apartment on the Yacht Basin which was purchased for R24.5 million by an international buyer sight unseen,” Golding stated.

Golding says these buyers are seeking a diverse range of residential properties for a variety of reasons, including holiday and investment purposes, to relocate here permanently, and capitalising on the favourable exchange rate.

“As soon as we began to see signs of a global and local recovery emerge in the wake of the pandemic, the attractive pricing offered by world-renowned sub-regions like the Atlantic Seaboard, began to attract foreign investment once more. With the Cape having experienced many years of double-digit house price inflation from about 2012 to 2018 when a correction set in, Covid-19 placed further pressure on house prices, resulting in a major correction, by up to 30% in prices in some parts of the Cape. All these factors have now come together and provided a buying opportunity. It’s also worth mentioning that the prime interest rate at a multi-generational low point has created significant access to well-priced credit, which has also stimulated buyers to act now.”

General market activity

According to Golding there has been a noticeable general uptick in activity at the top end of the market and positive signs of recovery – albeit dependent on realistic, market-related pricing – from R10 million upwards to the very top of the market, up to R100 million and beyond.

“In recent months, including the December 2020 festive season, we have successfully concluded sales on the Cape’s Atlantic Seaboard and in Johannesburg’s northern suburbs at prices from R20 million to in excess of R30 million and even up to R70 million.

“On the sought-after and world-acclaimed Atlantic Seaboard we recently sold a luxurious, prime located, four-bedroom Clifton bungalow in perfect position on 4th Beach for R70 million to an upcountry buyer for use as a holiday home. This transaction follows hot on the heels of our December 2020 sale of another Clifton bungalow for R37 million which was acquired by an Emirati buyer from Dubai.

“Worthy of mention is that our highest price achieved for a penthouse over the past 12 months is a three-bedroom apartment in The Marina in Cape Town’s V&A Waterfront which fetched R41.4 million in October last year,” he said.

Golding stated that it is important to recognise that South Africa’s national luxury residential property market remains predominantly a local market, with foreign buyers comprising less than 1% of total sales in any given time period.

“While there is an upward moving trend in Cape Town whereby the volume of sales to foreigners is higher than in previous years, in almost every instance of foreign buyer activity there seems to be some previous connection to South Africa. It would therefore appear that the underlying reality seems to be that there is a significant opportunity during an uncertain time to secure desirable and exceptional properties which might not come to the market in more certain times when the market is more buoyant, and that those international buyers with a strong connection to South Africa are taking advantage of the opportunity.”

Unseen transaction

Other Pam Golding Properties sales to foreign buyers include a home in Clifton on the Cape’s Atlantic Seaboard which was purchased ‘sight unseen’ by an American for R30 million just after the hard lockdown was lifted in 2020, and a penthouse in the V&A Marina which fetched R41 million, which was also acquired by a US buyer. Such buyers recognise the highly desirable lifestyle offering on the Atlantic Seaboard, and a comparable seaside lifestyle in most European and North American states would cost multiples of the cost here in Cape Town.

Golding states that contrary to some misconceptions in the marketplace, international buyers, including South African expats, tend to purchase property across all price sectors, consisting of different types of property in regions and locations around the country. These range from houses and convenient, lock-up-and-go homes such as apartments in secure complexes, including convenient central city apartments and frontline beachfront units, to homes within secure estates, game farms and lodges and wine farms.

“Purchasing property in South Africa for a variety of reasons, including leisure use, partial use during the year for business purposes, returning expats, retirees and investors, foreign buyers range from professionals and businesspeople to families and retirees. Buyers from the rest of Africa continue to show an appetite for residential property in South Africa and comprise an increasing proportion of our foreign buyers.

“It is also a misconception that international buyers have an impact on sales prices – international buyers are savvy and research the market thoroughly and will only pay market related prices.

“The local luxury market, and the residential property market in general, is currently at its most competitive pricing in over a decade and it is an excellent time to secure a well-priced property in international terms. I anticipate that the luxury property market is going to see a lot more buyers considering these types of homes as quality of life and affordability take precedent when they are considering their next residential purchase,” Golding said.

Trends and market outlook

Golding highlighted some trends in the local property market:

  • Cape Town’s appeal is enhanced by the fact that many internationally acclaimed architects have contributed to its unique offering of luxury homes, which match the highest world standards, many with exceptional views of ocean and/or mountains.
  • In recent months there has been strong enquiries from local, upcountry and foreign buyers looking to invest in secure living on the water, around The Waterfront and Promenade areas.
  • The lower end, up to around R8 million, comprises mainly value-driven investors taking advantage of the weak rand and lower property prices. The larger two and three-bedroom apartments in the higher price ranges up to R15 million and upwards, are often a primary residential purchase – a home to live in.
  • There is still interest in wine farms from foreign buyers who are very specific as to what they seek.
  • The housing market continues to be impacted by the new way we live and work.
  • Despite the initial shock to the housing market from the pandemic uncertainties, the market for residential property has proven to be one of the country’s more resilient sectors.
  • The interest rate cuts to near 50-year lows and resultant improved affordability, particularly for first-time buyers and renters, catalysed a wave of demand in the market which surprised on the upside.
  • While we cannot know what the long-term effects of the will ultimately have on the property market and with the impact of the pandemic far from over, continued changes in the way we live and work can be expected to continue to evolve – with important consequences for the residential property market.
  • The demand for office space is likely to be reduced and some of that space will be repurposed to residential accommodation. This means that there is likely to be an increase in new residential stock in some hubs.
  • The semigration trend of homeowners to the so-called zoom towns is well documented, with small, often coastal towns, and peripheral suburbs with amenities and healthy municipalities experiencing a net influx of new residents attracted by the appealing lifestyle and relative affordability of homes in these areas.
  • The fact that the pandemic may well remain for some time, makes it appear likely that we will adopt a more flexible approach to living. For property developers this would suggest a stronger focus on mixed use developments, providing a range of amenities and functions to residents and tenants in uncertain times.
  • There is a growing acceptance of the importance of climate change and the need to move to a net zero carbon environment. Given South Africa’s young population, the awareness and willingness to embrace a sustainable lifestyle, suggest that the shift to sustainable, green building and lifestyles is likely to rapidly gather momentum.
  • It is important to remember that there are lifecycle similarities and that young adults or first-time buyers are likely to favour a small lock-up and go in a business hub, while a young family may be more likely to consider moving to a zoom town. These life stages will dictate different housing requirements regardless of the pandemic because if you can live and work anywhere, it makes sense to live somewhere that suits your particular needs.

“We believe that solid fundamentals remain in place for ongoing investment in the residential property market,” Golding concluded.

  • Over the next few weeks we will also cover the opinions of other experts in the real estate industry about this topic.

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