Investors are filtering back
Cape Town a key focus as foreigners return to the sales market, writes Peta Tomlinson
South Africa tends to get a bad rap, what with its political and social unrest, and lately, industrial action. Even Standard and Poor's downgraded the sovereign rating of Africa's largest economy, amid uncertainty linked to strikes and rising social tension.
Not surprisingly, foreigners have shied away from South African property markets but, despite the bad news, data shows they are now filtering back, with Cape Town a key focus.
While the latest First National Bank (FNB) property barometer acknowledges "some heightened investor concern regarding South Africa's future stability and prosperity", it found that this has not had a noticeable negative impact on the property market. With regard to foreign buyers, John Loos, FNB household and property sector strategist, says there had been a slight drop in the third quarter data. "As yet, we would not draw any hard and fast conclusions based on one quarter's data, but it is something to watch," he says.
Stuart Murray, a consultant on economic matters to Pam Golding Properties, a leading South African real estate group, says South Africa's domestic problems "widely reported in foreign media", coupled with austerity measures in their own country, were impacting on Europeans, the traditional purchasers of residential property in South Africa. "Nevertheless, foreign buyers still account for 3 to 4 per cent of total residential buying, although this is way down on the 6.5 per cent experienced in the heady years of 2008/2009," he says.
One purchaser, from Germany, recently paid 30 million rand (HK$26.73 million) for a home in Bantry Bay.
Basil Moraitis, Pam Golding Properties' area manager for the Atlantic Seaboard and City Bowl, agreed that the number of international buyers remains relatively low. "However, they are starting to emerge in stronger numbers in more affordable price brackets than was typically their focus in previous years."
There is also "relatively steady interest" from foreign buyers in the guest house market. "Foreign buyers comprise some 70 per cent of our sales," says Peter Bruil, director of Pam Golding Lodges and Guesthouses. "Mostly they are looking for lifestyle. A well-situated and efficiently run and marketed guest house can provide an excellent living."
Ian Slot, managing director of Seeff Atlantic Seaboard, says foreign buyers account for about 3 to 4 per cent of property sales in the Atlantic Seaboard and City Bowl areas. Over the past year, around 86 properties to the value of close to 550 million rand have been sold to foreign buyers. Of these, British and European buyers bought 62 properties, accounting for 67 per cent of total foreign sales. No Chinese buyers were recorded, although Murray says interest is so strong, the group will attend an upcoming international property show in Shanghai.
About 70 per cent of all foreign sales were in the coastal suburbs of the Atlantic Seaboard, Slot said. Properties sold in Sea Point and Green Point were mostly apartments at an average price of 2.4 million rand and 2.6 million rand, respectively. Camps Bay has been another favourite with foreign buyers, its sales averaging just over 8.8 million rand. In Clifton, apartments were bought at an average price of 7.6 million rand by buyers from Britain, Sweden and the United States. In Bantry Bay, five properties sold at an average price of 14.1 rand million including one to a Japanese buyer. All were cash transactions, Slot says. Fresnaye achieved the highest average sales price with 4 sales at an average price of close to 18 million rand.
Darren McDermott is founder of Space Home Search and Relocation Cape Town, a company which only deals with overseas buyers. He reports a resurgence in demand to buy property particularly at the top end US$1 million to US$2 million mark.
These buyers favour Cape Town because its market is more buoyant than the rest of South Africa, capturing main home purchasers and the holiday home market. "The reason foreign buyers like Cape Town is that property is cheap, especially compared to other coastal regions in the world - and the recent fall in the rand has made it more attractive," McDermott says. Other factors are a great climate, English language, cheap cost of living, and a simple conveyancing process for property transactions.
He expects the residential market to remain flat in the coming year, with growth of just 1 to 3 per cent. "Elements underpinning this include high consumer debt, difficulty getting finance through banks and lack of confidence in the market - similar to what we are seeing in the rest of the world, and Cape Town is certainly not immune."
McDermott concurs that interest from foreign buyers is increasing and diversifying. While in 2008 around 70 per cent of his buyers were from Britain, it now accounts for only 10 per cent, the rest coming from around the world. "We are seeing a real increase in inquiries from the US," he says. Interest from Chinese buyers is minimal. "We had two clients from Hong Kong who bought here in 2008 and four since then", but McDermott expects that to change. "I was viewing a property the other day in Constantia and a tour bus of 15 Chinese tourists came to the house to view. I think it will only be a matter of time until we see the rich Chinese buying here. The Russians have entered the market as well as Middle Eastern rich clientele," he says.
Slot says that, while foreigners continue to invest in Cape Town, just as many foreign-owned properties are sold, so the net effect is usually negligible. Foreign buying also usually peaks around the tourism season, between November and April when about 90 per cent of all sales take place.
What you can buy for US$500,000
A four-bedroom, four-bathroom Cape Dutch home in rural Constantia on a 0.2-hectare landscaped garden with pool, separate office and security facilities. A European buyer chose this as a vacation home.
What you can buy for US$800,000
A three-bedroom family home plus separate one bedroom, self-contained flat, on the mountainside overlooking Hout Bay Beach. A British family bought this as a future retirement home.