Foreign buying of domestic South African residential property has surged this year. Why? The obvious answer is the dramatic depreciation of the Rand exchange rate as measured against the world's main hard currencies of the US Dollar, UK Pound and the Euro. The Rand weakness has retreated of late but our local properties still appear cheap to foreigners and this can be expected to boost foreign buying. In FNB's recently published report of their Estate Agent Survey they argue that the true driver of demand for local residential properties may not be as obvious as the exchange rate alone and in fact lies in a far more global phenomena which we will explore.
Firstly, lets examine how much cheaper our local properties actually are when measured in terms of hard currency. For the month of September 2014, the FNB House Price Index declined year-on-year by -6,6% in UK Pound terms, -4% in Euro terms and in US Dollar terms saw a mild +0,1% increase. These declines are far less than a year ago, but compared to the end of 2010 our prices are down by -25,5% in Pound terms, -20,4% in Euro terms and -22,3% US Dollar terms. So for the average Brit living in London, that enticing Camps Bay apartment suddenly looks 25% cheaper than four years ago.
The recent evidence does support the view that a weaker Rand has driven more buying of our properties by foreigners. The percentage of foreign buyers to total buyers has shot up from 2% in 2010 to 4,5% in the 3rd quarter of 2014. However, if we review recent history, most notably the 2008/9 period when Rand weakness was prevalent but the Global Property Market severely depressed in the wake of the financial crisis, we experienced a drop-off in foreign buying of our local properties. Furthermore, in 2005 when we experienced relative Rand strength, and yet very high demand for our properties by foreigners taking it to as high as 7% of total buying, it indicates that other factors are at play when determining the level of demand for our properties by foreigners.
To explain this we can consider the Knight Frank Global House Price Index growth. The recent growth in this index indicates that globally there is an uptick in demand for property as an asset class and this steady recovery since early 2012 is potentially the main driver of demand for our properties by foreigners. The FNB Estate Agent survey shows a dramatic improvement since 2012 in the perceived number of foreign buyers of homes in SA. With Estate Agent's being at the coal face of the property market, it is often useful to get a handle on what the aggregate view of Estate Agent's are from around the country to get an early insight into where the market may be heading.
The FNB foreign buying confidence index has shot up since 2013 and is currently at a high point when considering the past seven years. Finally a remix of who we consider our typical foreign buyers of South African residential properties to be is on the cards. The foreign buyers from the African continent make up 20,5% of all foreign buyers currently and has the potential to grow rapidly as the new found economic growth within Africa gains more traction. As Estate Agents looking for foreign buyers we should perhaps be looking northwards rather than to the historically active markets of Western Europe.
For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.
Seeff KZN Chairman
Principal - Seeff Dolphin Coast