Estate agents insist that foreign buying is not a factor in Cape Town’s property price spike — but circumstantial and anecdotal evidence tends to contradict them.
The 10-person Panel of Experts on the Development of Policy on the Regulation of Ownership of Land in South Africa by Foreigners, appointed by Minister of Agriculture and Land Affairs Thoko Didiza, failed to find hard evidence that foreigners had driven up prices. No economic analysis is yet available on the impact of foreign ownership on prices and changes in land usage.
However, it found anecdotal evidence that increased foreign demand had put upward pressure on prices, especially for residential property in Cape Town. They had, in turn, served to keep many newcomers out of the market.
A key observation of the panel is that foreign ownership was not necessarily an issue throughout South Africa. It was regionally concentrated, with non-citizens showing strongest interest in the Western and Northern Cape, and particularly the Cape Peninsula.
This is important in the context of estate agents’ protest, in response to the panel’s recommendation of a moratorium on land sales to foreigners, that not more than 1% of land in South Africa is foreign-owned.
The Institute of Estate Agents in South Africa said in its submission to the panel that 0,5% of the total value of property transactions between 1997 and 2002 was foreign in nature. However, Pam Golding, which handles most foreign buyers, said between 5% and 8% of its sales were foreign transactions.
Even the estate agents conceded that foreign purchases constituted a significant percentage of those in certain prime seaboard areas in the Western Cape and KwaZulu-Natal. The estate agents’ institute confirmed in its submission that between 1999 and 2004 the sale of housing units to foreigners in Cape Town averaged between 6% and 7% of total sales.
In a parliamentary exchange last year with the African Christian Democratic Party, Minister of Finance Trevor Manuel questioned whether 1% of land in Cape Town was in foreign hands. If one stripped away Khayelitsha, Mitchells Plain and other northern suburbs and considered only the wealthier areas, the proportion of foreign-owned property was much higher, he argued.
The panel’s report also points out the 1% figure should also be treated with caution because of the dreadful state of South Africa’s deed registry.
Estate agents such as Seeff say South Africa has the ”best performing” residential property market in the world, with the Western Cape leading the way. Seeff’s Ian Slot told an international real estate conference last year that South African home owners enjoyed average property price increases of nearly 28% over the 12 months to the end of February, compared with Australia’s ”relatively sober 2,7%”. South Africa’s nearest rival was Hong Kong, with 21,6%.
However, estate agents interviewed by the Mail & Guardian insisted relatively strong economic growth, low interest rates and demand from the emerging black middle classes had driven the boom.
One indication that foreign purchases are also a factor is the fact that the boom took off in 2000 — when the rand nosedived. Economists estimate average house prices in the country’s annual R200-billion market have risen by 229% in the past six years. Prices increased by 18% in real terms last year, slowing from 30% in 2004.
Residential property prices in the middle-income market have recorded particularly high increases in real terms since 2000.
Middle-income Capetonians have been hard hit, as random interviews by the M&G indicated. ”I can no longer afford a family house, even with my a good job,” a flight steward from Pinelands told the M&G. ”We have no option but to rent.”
The owner of a plumbing business in Fish Hoek said he was forced to continue renting a house for R2 000 a month. A Johannesburg couple who wanted to retire to the Belleville house they sold 15 years ago for R225 000 found that it was now well beyond their means, at R1,4-million. ”In the end we decided to settle for much less than we ever thought we would,” said a frustrated Michael Davies.
The panel said the impact of converting commercial agricultural land into game farms or lodges on job opportunities, food production and income generation was equally unclear.
The report also established that foreign buyers have significant investments in wine farms. Chateau Pichon-Longueville-Lalande recently bought a 310-acre estate in Simonsberg, while Italian Count Ricardo Agusta invested R17-million in revamping Agusta Wines’s cellar in Franschhoek.
It’s not unusual
Restrictions on foreign ownership of land are common in countries across the world — including India, Canada and Switzerland, writes Yolandi Groenewald.
Limitations include lease or term restrictions; land quantity restrictions; preference or first refusal for nationals; permit requirements; and restrictions in sensitive areas such as coastal zones.
- Despite its booming economy, India prohibits land acquisition by non-Indians. Foreigners can buy one residential property for their own use with Reserve Bank permission.
- Foreigners must have state approval to buy residential property in Switzerland. Foreigners can buy land after residence of longer than five years.
- In Alberta, Canada, no foreigner may acquire an interest in ”controlled land”, including private land outside urban boundaries.
- To curb speculation, Australian law limits foreigners to buying new residential properties, which they can sell only to Australians.
- Freehold ownership by foreigners is prohibited in much of Asia, including Malaysia, Thailand, the Philippines and Indonesia. In the latter, foreigners may have land use title for up to 10ha of non-agricultural land for residential use.
All land in Mozambique and Tanzania is nationalised, limiting ownership rights for locals and foreigners. In Zambia all land is vested in the president and can only be leased for up to 100 years.
Some states are relaxing restrictions in response to economic or political pressures. China has gradually opened long-term leases to foreign investors, while South Korea and Japan allow foreign ownership in most cases.
A law allowing foreign purchases in Turkey, passed last year, has hit opposition, with critics accusing the state of ”selling off” the country.
Former communist states such as Poland, Hungary, Bulgaria, the Czech Republic and Slovenia banned foreign purchase of farmland to head off Western buyers holding strong currencies. However, their accession to the European Union complicated matters, as EU citizens can own property in all member countries.
As a compromise, foreign farmers cannot buy land in Poland until 12 years after accession. Hungary, the Czech Republic, Slovakia and Bulgaria propose a seven-year moratorium.