The number of foreigners buying domestic residential property in South Africa has started to drop. First National Bank (FNB) noted: “The FNB Estate Agent Survey for the 2nd quarter of 2015 hints at some slowing in the prominence of buying of South Africa residential properties by foreigners.”
According to FNB there are three possible reasons for the slowdown in foreign interest in residential property.
“Firstly, a reasonably “well-behaved” Rand in recent times did lead to a bout of house price inflation of domestic homes in certain foreign currency-denominated terms, and a lack of further South African housing affordability improvement in others. Secondly, residential property’s global popularity as an asset class may just have cooled off mildly in recent times. Thirdly, it is not inconceivable that a deterioration in domestic economic performance along with heightened social tensions could cause greater foreign residential investor caution,” explained FNB.
Interest is declining
The estimated percentage of foreign buyers for the second quarter of 2015 has dropped to four percent from 5.5% in the previous two quarters.
When asked whether they have experienced an increase, decrease or no change in the number of foreign buyers, real estate agents had five possible options to choose from.
· “There is a lot more foreign buying”,
· “A little more foreign buying”,
· “The same amount of foreign buying”,
· “A little less foreign buying”, or
· A “lot less foreign buying”.
According to the survey, only one percent of respondents have perceived a large increase in foreign buyers. This is a drop compared to the previous quarter, where three percent of respondents noted a “lot more foreign buyers”. The number of agents who note there is a little more interest by foreigners remained the same as the previous quarter at 13%.
A majority of the respondents (83%) believed that there has not been a change, while two percent noted a “little less foreign buyers” and one percent revealed that there were a “lot less foreign buyers.”
FNB believed that there are possibly three contributing factors to this slowdown in foreign residential property buyers.
The contributing factors
The three possible contributing factors according to FNB are:
1. The Rand’s period of relative stability.
2. Slowing in the rate of increase in popularity of residential property as a global asset class.
3. Investor sentiment towards South Africa.
According to FNB, “during the first half of 2015, the Rand has been relatively stable, showing very little in the way of year-on-year depreciation or appreciation.”
The performance of the Rand during the first half of 2015 presents a “mixed bag”, according to FNB, presenting “cost increases in South African property for certain regions’ buyers such as those from the Euro Area.” However, it has also “slowed the pace of affordability improvement for others, such as Pound and Dollar buyers, since prior years.”
FNB added: “The factor that we believe to be more significant in driving the pace of foreign home buying in South Africa, however, is the performance of residential property as an asset class globally.”
Property in large part reflects economic trends. FNB highlighted that it is therefore not surprising that global property prices are not increasing as quickly as they were a few years ago.
As the popularity of residential property as an asset class weakens, FNB noted that “this could impact negatively on the level of foreign property buying, or at least the growth therein, in the near term.”
Another possible contributing factor is “South Africa’s stagnating economic performance,” as well as the heightening social tensions, such as xenophobia. FNB believed that this “may encourage a more cautious approach by certain foreigners towards residential investment in South Africa.”