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Confusion over ban on foreign land ownership

Feb 13 2015 16:10
Carin Smith and Matthew le Cordeur

Cape Town - Only about 3% of all property in South Africa is foreign owned and, at best, 2% of all annual purchases are done by foreigners, according to Seeff chair Samuel Seeff.

"The reason for wanting to restrict ownership and who this is meant to benefit is then rather difficult to gauge," said Seeff.

"It seems to just be that time of year again when the land debate regrettably turns to foreign property ownership and, rather than advance a solution to the land issue, it sends the wrong message to investors and puts undue pressure on the property market."

Certainly insofar as privately held residential property is concerned, the wish to restrict foreigners seems to be more about politics than land redress, in Seeff's view.

"The myth that foreigners buy the most expensive property and pay exorbitant prices needs to be dispelled conclusively. While the weak currency has made our real estate attractive, foreigners, like every buyer out there, wants to pay the lowest possible price. In fact, it is South Africans who understand the nuances and characteristics of the South African property market that are paying the highest prices," he said.

READ: Zuma lost GPS signal on land ownership - business

Most of the foreign buyers are so-called UK and northern European "swallows", who travel south to escape the harsh European winters. They stay for three to four months over the SA summer and often bring friends and family.

"They bring pounds and euros, shopping, eating out and visiting tourist attractions, all of which are vital job creators," said Seeff.

What is a foreign buyer?

Seeff wants to know what constitutes a foreign buyer. Is it a permanent resident, someone who visits for up to six months or someone who just comes for a short-stay?

"What about those from the rest of the SADC-region and African countries like Nigeria, who have growing business interests in Johannesburg and are looking to buy homes in Sandton? Do we want to discourage this?" asked Seeff.

"Foreigners also bring progress. The regeneration of the old run down Cape wine farms and Cape Town’s inner city development being two prime examples, but also of leisure facilities and tourist attractions. All of this brings money into the economy and creates jobs," said Seeff.

"Finally, is this correct constitutionally? Can you be prevented from a person from selling your own land or property to a buyer of your choice? Will restriction not just encourage deviant behaviour and circumvention?"

READ: Foreigners won't be allowed to own SA land

He would rather encourage government to engage with industry experts before making statements "that do little else other than to upset the market and create uncertainty".

Psychological effect on foreign investors

Erwin Rode, editor-in-chief of Rode’s Report, said the decision to ban foreigners from owning land would have a psychological effect on foreign investors thinking about moving to South Africa.

Listen to the full interview:

“I would suggest that it is going to be very negative because … it will push African scepticism,” he said.

“Only about 1% of properties in this country are owned by foreigners,” he said. “When these guys buy into South Africa, they bring capital, [and] they bring in expertise, technology.”

He said the decision to cap land ownership to 12 000 hectares was concerning. “To start with, it’s a very arbitrary figure. 12 000 hectares in the Boland is not necessarily the same as 12 000 hectares in the Karoo; the one being extensive and the other intensive.

“There is no way that 12 000 hectares can be an appropriate limit,” he said.

He said if the Constitutional Court allowed it, they would have to divide the country up. “It’s not a very practical solution as it stands,” he said.

READ: Sona wrap: Zuma drops bomb on land ownership

Dr Andrew Golding, chief executive of the Pam Golding Property group, cautions that every time this issue rears its head, it further serves to erode confidence in the country as an investment destination – mainly as a consequence of issues of uncertainty.

"And while nationally this is still a proposal, the fact is that by its very nature it erodes foreign direct investment appetite, and potential investors who may be weighing up South Africa versus a number of other destinations will potentially simply choose to invest elsewhere," said Golding.

“Certainly it is worth reiterating that the level of foreign buyers of residential property in South Africa is so insignificant relative to the total market, but more importantly, the benefits of foreign investment in property in this country and the knock-on effect of that investment far outweigh any perceived negative."

He said leasehold is not a conventional South African methodology and would require significant understanding and implementation of dramatic changes to current property practice, not to mention the question of whether or not this is a Constitutional issue as well.

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, said although there was prior discussion around the position on foreign ownership of land, it was expected that foreigners would only be restricted to some degree when purchasing land.

“While we recognise the fact that a bill will be implemented later this year limiting foreign land ownership, which is a concern to the real estate industry, the more concerning issue is the lack of stability displayed at the State of the Nation address, which in turn could impact on foreign capital investment into the country,” said Goslett.

“This in itself could lead to a lack of infrastructure development as well as a lack of employment opportunities for South Africans. We trust that the leadership of the country will make the right decisions that are in the best interest of its people.”



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