Buyers from Africa boost foreign demand for SA homes

There is increasing interest by foreigners in South Africa's residential property market with wealthy people from other African countries driving the demand.

This is according to the FNB Estate Agents Barometer for the second quarter of 2019, published on Wednesday. The report is based on a survey of estate agents predominantly in SA's six major metros.

In the latest survey, estate agents were asked to estimate the number of foreign citizens buying homes as a percentage of total domestic volumes in their respective local markets.

FNB economist Siphamandla Mkhwanazi says that volumes of residential property sales by foreigners are recovering from 2018 lows, now accounting for more than 3.7% of the domestic market.

"Using a two-quarter rolling average (to reduce volatility in the data), these purchases accounted for 3.74% of total domestic home buying in the second quarter of this year. This is up from 2.98% in the last quarter of 2018 and 3.61% in the first quarter of this year.

"Nevertheless, foreign buying remains below the 5.72% peak [seen] in the third quarter of 2016 and [the] 4.4% long-term average."

In the report, Mkhwanazi notes that the improvement suggests foreigners "looked through the elections-related noise" and took advantage of attractive prices and the favourable conditions of trade (higher negotiating power).

"While many aspiring homeowners may have sat on their hands during the national election period, foreigners (presumably wealthy) used the opportunity to acquire domestic assets, most likely at a significant discount."

Despite the uptick in foreigners buying residential properties in the country, Mkhwanazi notes that emigration-related sales by South Africans have continued to increase putting a drag on the overall residential property market.

This, he says, has contributed to excess supply (predominantly in the upper-ends of the property market). "The net migration effect further deteriorated, due to emigration-related property sales growing faster than inbound foreigner demand."

He expects net foreign demand to remain a drag on prices, until perceptions about the country improve materially. "This requires substantially higher GDP growth and tighter labour markets."

Commenting on the report, Bradd Bendall, Pam Golding Property Group's general manager for real estate operations, says investors from other African countries continue to show a strong appetite for residential property in South Africa, particularly in Gauteng.

"Demand is coming from countries such as Zimbabwe, Zambia, Namibia, Nigeria, Botswana, Kenya, Angola, Moçambique, Angola, the DRC, Ghana and Gabon, among others. The price range experiencing demand is from around R800 000 to approximately R5 million, with some enquiries and transactions up to R10 million and beyond," he adds.

"Many are business executives, including entrepreneurs, either travelling regularly to South Africa on business or establishing bases from which to expand their operations, not only in South Africa but also in other African countries.

"As they may spend considerable time in the country, it makes economic sense to purchase a home here, a trend that is evident in Gauteng areas such as Fourways, Sandton, Sandhurst, Hyde Park and Houghton," Bendall notes.

It also states that foreigners have "continually played a less prominent role in the Cape Town market" over the past year, with part of this demand migrating to Durban and Port Elizabeth.

Ross Levin, managing director for Seeff Atlantic Seaboard, Waterfront and City Bowl says he is not surprised that emigrated-related selling is up, and that while more foreigners are buying compared to last year, it is still well below pre-2017 levels.

"Aside from emigration-related selling, we are also still seeing foreign-owned properties being put up for sale. Foreign buying as a percentage of overall sales in the Atlantic Seaboard/Waterfront/City Bowl areas has declined from around 20% to about 10% at best this year," he adds.

Levin notes that the decline in foreign buyers in Cape Town is due to several reasons, including the Cape water crisis and resulting decline in tourism, however he believes it is predominantly being driven by economic and political factors.

According to Bendall, buyers particularly from Zimbabwe, are not only looking to buy residential property in Gauteng and the Western Cape, but also seek coastal holiday and retirement homes along the KwaZulu-Natal North Coast. He says there is growing interest in new development nodes like Sibaya north of Durban, while the Eastern Cape is also seeing interest in areas such as Grahamstown.