Will Overseas Buyers Help Push Prices Up?

We often get asked if overseas buyers are purchasing local property, and how this impacts on property values.  There is no doubt that overseas travellers love the Western Cape and enjoy holidaying here.  Not only are we spoilt with the most incredible scenery, warm people, and outstanding food and wine, but when you convert the local cost to foreign currency our visitors must think they’re in heaven. CapeTown_Africa

So are our visitors snapping up South African real estate now that the exchange rate is so much in their favour?  Simply put, no.  It’s not that they have anything against South Africa.  For all the reasons mentioned above they love coming here.  But before anyone brings their hard-earned money into our, or any other country, there are a few questions they will want answered.

Firstly, there was a big fuss made of the Presidents’ statement in his State of the Nation address in February that there will be controls placed on foreign ownership of property.  I was in Australia at the time and it was big news there.  In a clarification a few weeks later the government explained this would only apply to certain agricultural properties – but the correction was almost “on the quiet” and didn’t do much to allay investors’ concerns.

Then consider the revised visa regulations that effect foreigners.  Those who were used to being able to spend 6 months here at a time, in their South African properties, spending their foreign currency in our shops and restaurants, now find themselves having to return home after 3 months.  A lovely message we’re sending our foreign investors.  The result?  A stream of properties owned by foreigners being listed as they made the decision to spend their time and funds where they’re wanted.

As a final consideration, foreign investors would weigh up whether their investment is sound or not. Even in Euro’s or Pounds, purchasing a property would require a considerable amount of money. 1.6_Glassglobe

Now reflect on the rapid depreciation of the rand.  A year ago the rand was R 17 to the Pound.  Today it’s R21 – that’s more than 22% depreciation in 12 months.  Property values have escalated between 6% and 12%.  So, even with the escalation, an investment would have depreciated by 10% or more.  It doesn’t matter what currency you work that out in – that’s simply a bad investment.

Good value or not, would you bring your hard-earned capital into an economy where the local currency is this fragile, with most economists predicting an equally bad time ahead for the local currency?

Add to that the negative sentiment expressed by government on foreign investors, the fact you’d have to return home after 3 months in sunny South Africa, and the issues around obtaining a visa (and possibly an unabridged birth certificate for your kids)….  What would your decision be?

So, don’t hold your breath for the foreign buyers.  Don’t let that stress you, however.  The rest of South Africa wants to live here, and the continued demand for local property means your investment will grow handsomely – at least in local terms.

Steve Caradoc-Davies

Principal of Harcourts Platinum
Director of Harcourts South Africa

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