‘Mild de­cline’ in for­eign de­mand for SA prop­erty

The Star Early Edition - - BUSINESS NEWS - Roy Cokayne

FOR­EIGN de­mand for lo­cal prop­erty may be de­clin­ing but it is un­clear whether this was be­cause of the sig­nif­i­cant re­cov­ery in the value of the rand in the past year or the re­cent resur­gence of neg­a­tive sen­ti­ment fol­low­ing the down­grade in the coun­try’s credit rat­ings to junk sta­tus.

John Loos, a house­hold and prop­erty-sec­tor strate­gist at FNB, said there had been a mild de­cline in FNB es­tate agent sur­veys in the es­ti­mated per­cent­age of for­eign buy­ers from 5.28 per­cent for the four quar­ters up to and in­clud­ing the third quar­ter of last year to 5.057 per­cent for the four quar­ters up to the sec­ond quar­ter of last year.

Loos added that while the per­cent­age change was not too dif­fer­ent from a year ago, given that over­all res­i­den­tial trans­ac­tion vol­umes had de­clined, the change in the ab­so­lute num­ber of for­eign buy­ers of do­mes­tic homes “may be a bit more sig­nif­i­cant”.

But Loos said the per­cep­tion among es­tate agents as a group of a de­cline in for­eign buy­ing be­came more ev­i­dent in the sur­vey fol­low-up ques­tion that asked them whether they per­ceived an in­crease, de­crease or un­changed lev­els in for­eign buy­ers com­pared with 12 months ago.

He said in the sur­vey in the sec­ond quar­ter of this year, 78 per­cent re­ported “un­changed lev­els” but “un­changed” was nor­mally by far the largest re­sponse.

Loos added that 7 per­cent of agents re­ported “a lot less” for­eign buy­ers and an iden­ti­cal per­cent­age “a lit­tle less” for­eign buy­ing.

He said that in ex­am­in­ing the po­ten­tial rea­sons for a de­cline in res­i­den­tial prop­erty to for­eign­ers, there was a need to first con­sider the cost of do­mes­tic hous­ing for for­eign­ers.

Sharp in­crease

He said FNB’s house price in­dex when de­nom­i­nated in cer­tain ma­jor for­eign cur­ren­cies pointed to a re­cent sharp aver­age in­crease in South African home val­ues for cer­tain as­pi­rant for­eign buy­ers, par­tic­u­larly for UK in­vestors in pounds.

Loos said the in­dex rose year-on-year by 21.2 per­cent in US dol­lar terms last month, by 24 per­cent in euro terms and by “a very sharp” 36.2 per­cent in Bri­tish pounds.

“This rand-driven in­crease in for­eign de­nom­i­nated val­ues could con­ceiv­ably have had some­thing of a damp­en­ing im­pact on for­eign de­mand for do­mes­tic prop­erty,” he said.

How­ever, Loos stressed they be­lieved the key driver of for­eigner hous­ing de­mand was more re­lated to the pop­u­lar­ity of prop­erty as an as­set class glob­ally.

Loos said the Knight Frank house price in­dex fell sig­nif­i­cantly in the sec­ond quar­ter, go­ing against what they would nor­mally ex­pect given rel­a­tive global hous­ing mar­ket strength and its per­ceived im­pact on for­eign buy­ing lo­cally.

He said this may point to a soft­en­ing in sen­ti­ment among prospec­tive for­eign buy­ers, pos­si­bly caused by widespread neg­a­tive pub­lic­ity in the sec­ond quar­ter around South Africa’s newly ac­quired credit rat­ings “junk sta­tus”. “Cou­pled to this, we have had fur­ther neg­a­tive pub­lic­ity after South Africa was re­ported to be one of very few coun­tries to have been in re­ces­sion in re­cent times,” he said.

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