The level of foreign buying of residential properties in South Africa has become of interest after a surge of this category of buyers in the first half of 2014. It is common for estate agencies along the Atlantic Seaboard to experience a high level of foreign interest in their properties, but for us along the Dolphin Coast it has been the exception rather than the rule historically.
A common misperception I come across frequently is that Zimbali enjoys a high level of foreign buying. This is not the case and I would estimate that fewer than 5% of the homes are owned by foreigners. For those foreigners that do invest in Zimbali, they typically elect to purchase a home in the lower price bracket (below R7m) rather than the higher bracket (above R15m).
During the first half of this year, as the Rand weakened considerably against the major currencies such as the US Dollar, UK Pound and Euro, we experienced a flood of foreign enquiries and successfully concluded several transactions to foreigners. In some instances a local connection through family in South Africa existed creating a pre-existing bond with our local market, but in others it was purely an investment based on what the destination and country had to offer them in terms of a great holiday opportunity. My perception was that they were watching and waiting for the right opportunity, and as the Rand dropped below a certain threshold the relative price of the properties in hard currency terms became increasingly attractive.
Considering the FNB House price index in foreign currency terms we see that as of June 2014 the year-on-year growth rates were -7,4% in UK Pound terms, -1.9% in Euro terms and +1.1% in Dollar terms. As measured from the end of 2010, the index indicated that prices were down by 25.6% in Pound terms, 21.7% in Euros and 19.4% in Dollars. For a UK based investor who liked the idea of owning a South African holiday home in one of our premier coastal destinations, the timing therefore could not have been better.
As of the first half of 2014 foreign buyers as a percentage of total buyers is estimated to be 4%, which is still considerably below the historical peaks of 7% in 2005 of 6.5% in 2008, but much improved from the low point of 2% in 2010. When considering how foreign buying activity has fluctuated over the past ten years, it does indicate that there may be more than the Rand exchange rate that drives foreign buying behaviour.
The recovery in the global demand for residential properties as measured by the growth in the Knight Frank Global House Price Index gives us further insight into what may be driving foreign interest in our properties. This index has grown steadily from 2011 to its current level of 7.1%. If we then consider the FNB Foreigner Home Buying Confidence Index we see that this measure has also increased steadily over the same period.
The Rand weakness of 2008/9 did not however manage to drive foreign buying then as the global house market was depressed at the time. As the global demand for residential property as a general asset class has improved, and coincided with a convenient weakening of the Rand in the first half of this year, this has been enough to tip the balance in favour of investing in South Africa for many hard currency based buyers.
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