Foreign Buyer Market strengthening, albeit slowly

08 August 2014

South Africa’s falling rand currently gives Brits and Europeans a great opportunity to buy property in South Africa, with the current exchange rate at R18.15 to the British Pound and R14.37 to the Euro, but the reality is that while it has impacted the market positively, it hasn’t been dramatic, says Lanice Steward, managing director of Knight Frank Residential SA.

According to a recent report from John Loos, FNB Property Economist, the figures show a slow rise from a low of 2% of total property bought in South Africa in 2010 to 4% by the first half of 2014.

The most probable reason for this, she says, has been that most people are only just now recovering from the downturn in the economy and there is more disposable income than before. There has certainly, however, been a return of expatriate South Africans returning to buying property in South Africa, whether to move back permanently, or to buy holiday homes in Cape Town and other popular areas of the Western Cape such as Plettenberg Bay and Hermanus.

“It is interesting to note that, of the last five foreign buyer sales that have come through the Knight Frank branch in Cape Town, all have been Knight Frank clients globally, and have said they prefer to stick to the one brand,” said Steward. The price ranges of properties bought have been from R8 million up to R30 million.

Steward says, in her experience, foreigners who have bought in South Africa only use their properties for a short time of each year and want to make their investment work for them by renting them out as holiday villas. This they often do through the Knight Frank Atlantic Seaboard branch, which offers a fully managed service for holiday lets.

According to PropStats figures (the Institute of Estate Agents Western Cape property data service) which tend to be the southern suburbs of Cape Town and Atlantic Seaboard based, the average house price from June 2013 to end of May 2014 was R2 462 400, whereas the average selling price of homes for the same period the year before that was R2 182 610. This indicates a year on year growth of 12,8% with properties taking a shorter time to sell as well as selling closer to their asking price.

These figures correspond to Loos’ report figures which report that in the 2nd Quarter of 2014, the FNB Western Cape House Price Index recorded year-on-year growth of 12,5%, up from the previous quarter’s 11,1% figure.

One of the most important things to note, however, said Steward, is the activity level in the property sector, as it is the number of sales and not only an increase in price that counts.
This has risen, according to Loos, from 6.5 on a scale of 1 to 10 in the 1st quarter of 2014 to 6.7 in the most recent survey done in May. A rise in unit sales rather than just in monetary terms indicates genuine growth, she added.

Sellers are now becoming more realistic in the pricing of their properties and buyers are accessing funds more easily, with the result that homes are now taking on average 96 days to sell in Cape Town whereas in the period of June to May last year, they were taking an average of 105 days to sell. The percentage between the asking prices and selling prices has also been reduced, from 11,4% in the previous year to 8,3% according to PropStats.

Lastly, another interesting thing to note, said Steward, is that Cape Town remains the city with the highest estimated percentage of foreign buyers at 7.5% for the 1st half of 2014, followed by Johannesburg with 4%.