‘Mild decline’ in foreign demand for SA property

12 July 2017

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.