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Foreign
buyers not pushing up South African property prices -
Tony Clarke, the new MD at Rawson Properties, has added his voice to many
others in the SA property sector who believe that ownership of property
should continue to be open to all foreigners and especially those investing
in other spheres of the economy.
‘For obvious reasons,’ says Tony, ‘this has become a highly emotive issue
but the reasons advanced so far for banning or limiting foreign property
ownership are largely invalid.’
The argument that foreign buyers push up the average prices of SA
residential land, says Tony, remains totally unproven and he doubts if it is
true. ‘Consider the facts,’ he says, ‘firstly, foreigners have in the last
six years been responsible for less than one per cent of the value of SA
residential purchases – how can so small a figure affect the overall price?
Secondly, foreigners buy mainly at the top end of the market so have little
or no effect on middle and lower bracket prices. Thirdly, our experience has
been that these foreign buyers negotiate as hard, if not harder, than locals
and refuse to overpay. Fourth, foreign buying has slowed down after the
record figures recorded during the 2004/2005 summer season. This is probably
due to a stronger rand and South Africa’s property price growth that took
place over that period.’
Tony’s statements were supported by the Rawson research team which says that
the average price of homes sold to non-South Africans in 2005 was R2
million. In 2006 it was R2.5 million and in 2007, so far, it has been R2.7
million, ie all very definitely in the top bracket. Tony says that in
courting foreign capital investment SA businessmen have always been able to
play the free enterprise card strongly, to sell South Africa on the basis
that it is a society which respects the freedom of the individual and allows
businesses the opportunities to grow.
‘To restrict foreign ownership would send out the wrong message to the very
people we want to attract,’ says Tony. ’Foreign property transactions also
boost the economy during the buying and selling process, as various taxes
become payable, ie Capital Gains Tax and Transfer Duty.
The boom in property prices, he adds, was due to factors already widely
publicised by, for example, the latest Absa Residential Property Market
Review: the growth of the middle class, fairly low interest rates and a
drastic shortage of land zoned for new development, coupled to rising
construction costs. If the state wants lower house prices,’ he says, ‘they
must widen the urban fringe and zone far more land for residential use. The
shortage of suitable land is a large contributor to raising property
prices.’
Tony added that the National Credit Act is already slowing down house sales
and this is likely to continue – but, he added, house prices, particularly
in the middle and upper brackets, continue to appreciate very
satisfactorily. This approach echoes the sentiments voiced in a report
compiled by the Group Economics department of Standard Bank on the foreign
ownership issue last year .
‘The report,’ says Tony, ‘makes it clear not only that most countries in the
world are not averse to foreign ownership but also that if moratoriums are
imposed they are likely to deter foreign direct investment and the influx of
skilled workers – these we need badly – and could also impact negatively on
tourism because foreigners with local property come here far more frequently
than those without it.
‘Obviously,’ added Tony, ‘special rules could apply to areas subject to land
reform, agricultural property and environmentally sensitive areas.’ Clearly
most countries have regulations in place to guide foreign ownership, but few
place an outright moratorium on foreigners wanting to buy property in their
country.
‘The report shows that Australia, for example, allows foreigners to buy up
to 50 per cent of any multi-unit project and will allow sales of vacant land
provided that construction begins within a year. Foreigners can buy
commercial property up to about R200 million in value and are welcome to
purchase established property provided that an additional 50 per cent is
spent over and above the purchase price on improvements or extensions. They
are particularly encouraged to form partnerships with Australian nationals.
‘In France, there are no restrictions on foreign ownership but, in what is
still a semi-socialist country, there are still some stringent tax laws, eg
if the property is company owned a three per cent tax on its total value is
levied annually. ‘In the US a similar easy-going system prevails except
where there could be a security risk and certain states in the US limit the
amount of land a foreigner can buy. Our colleagues at the National
Association of Realtors in the US confirmed this.
‘In Singapore, which has a drastic property shortage, foreigners can still
buy property provided they will live and work there.
‘In Chile, there are no restrictions except as regards foreigners buying
close to national borders.
‘Indonesia allows foreigners who are contributing to the GDP (ie not just
holidaying) to own property or to enter into renewable 65 year lease
agreements.’
Seven reasons are given why a country might consider restrictions on foreign
ownership. These, he says, include protecting the local lifestyle,
preventing foreign economic domination, controlling immigration, conserving
local food supplies, enhancing national security, preventing foreign
speculation and controlling direct foreign speculation. ‘At this stage,’
says Tony, ‘the whole matter therefore boils down to whether we really want
to be an investment-friendly country or not. We cannot on the one hand say,
‘Yes, we welcome your money for this factory, plant or business’ and on the
other hand say ‘but SA is for South Africans so you will be subject to
draconian residential rulings not dissimilar from those imposed on migrant
labour in the hey-day of apartheid’.’
Pointing to Ireland, Tony says that few countries had proved more successful
in attracting FDI, but he says this had been accompanied by large-scale
foreign property buying. ‘People moved their investments and businesses to
Ireland because it offered cheaper labour, greater tax concessions and a
better, less congested lifestyle – and for five years they had phenomenal
growth. Could not the same occur in SA – without destroying the local
cultures?’
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South Africa: Western Cape
Slows House Price Rise
Western Cape's relatively sluggish house price growth is dragging down the
national house price average growth, with Gauteng appearing a lot more
steady, the latest Lightstone Residential Property Indices says.
First National Bank property strategist John Loos said yesterday one factor
behind the sluggish Western Cape price trend was that growth in the market
was coming off a much higher base than in the other provinces because it
reached higher peaks at the height of the property boom.
Coastal markets such as Western Cape were also more cyclical in nature and
more interest rate-sensitive than Gauteng because there was a significant
amount of holiday property included in the Western Cape data.
He said when interest rates started to rise, the potential buyers of coastal
holiday property might hold back for a while until the higher interest rate
cycle has passed.
The Lightstone Residential Property Indices, prepared by Lightstone Risk
Management, which uses a repeat sales methodology based on deeds office data
to estimate its house price growth indices, showed that in March, Western
Cape's house price increase was a mere 10,7% year on year.
Gauteng, at a 17,4% year on year rate of increase , was slightly below the
national average of 18,8% year on year for March.
Lightstone Risk Management uses prices of all property that comes up for
resale in the market.
Loos said the indices showed that several of the smaller inland provinces,
such as Free State, with growth of 27,7%, Limpopo with 32,7%, Northern Cape
with 25,2% and North West with 22,7%, had lifted the national average
slightly above Gauteng's growth . "Gauteng is the main driver of overall
national figures because it is such a big market."
Loos said Lightstone Residential Property Indices provided an accurate
reflection of the market.
"I think it provides a very good indication of market trends," he said. The
Lightstone Residential Property Indices also showed that the middle and
lower priced property markets were surging ahead rapidly.
In the "affordable" market, where properties are priced at R250000 and
below, annual price growth of 42,6% year on year was recorded in March. The
middle-priced market recorded growth of 22,4%.
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