Why fewer foreigners could buy property in SA

Cape Town - There may be some decline in foreigner buying of property in SA in 2017, according to John Loos, household and property sector strategist at FNB.

In 2016, however, there was a continuation of the multi-year rising trend in foreign buyers from the rest of the African continent buying property in SA - expressed as a percentage of total foreign buyers of domestic housing.

From a 10.5% low in 2010, this percentage has risen to a 27.95% average for 2016, the highest annual average estimate for African continent buyers since we started this survey question back in 2009.

"Some comeback in the rand through 2016 left domestic property significantly higher for foreign buyers. This, along with arguably very high global property values, raising concerns of a slowdown in housing markets, may cause some decline in estimated foreigner buying of domestic property in SA in 2017, after a solid 2016," said Loos.

He said the FNB House Price Index, when denominated in certain major foreign currencies, points to a sharp average increase in SA home values for some aspirant foreign buyers in the latter stages of 2016. This is especially the case for UK pound investors, with the pound having suffered severely at the hands of last year’s Brexit vote.

In US dollar terms, the FNB House Price Index rose year-on-year by 9.4%, and a slightly more significant 12.9% year-on-year in euro terms. In pound terms the increase was a very sharp 31.2%.

READ: Gauteng home to most first-time buyers in SA

"South African residential property has thus become more expensive late in 2016 for buyers from the UK, eurozone and US, particularly in the UK's case," said Loos.

"This rand-driven increase in foreign-denominated values could conceivably have had something of a dampening impact on foreigner demand for SA property."

However, he believes the key driver of foreigner housing demand to be more related to the popularity of property as an asset class globally, and indeed 2016 was another generally strong year for global housing.

The result is that in the 2016 FNB Estate Agent Survey there was not any noticeable decline in estimated foreigner demand for housing for the year on average.

Loos cautions, though, that late in the year one may well have seen foreigner demand showing signs of “levelling out”.

For 2016 as a whole, the average estimate of foreigner buying - according to the estate agents surveyed - was 5.2% of total home buying. Despite the rand strengthening through the year, the average for 2016 turned out a little higher than the 5% and 4.5% for 2014 and 2015 respectively.

"So despite a slightly better estimate in 2016, we could arguably say that 2015 and 2016 represent a broad levelling out in the level of foreigner buying following prior years’ strengthening," said Loos.

Read Fin24's top stories trending on Twitter: Fin24’s top stories