Foreign Property Buyers enter the fray
Foreign investment into South African property appears to be continuing unabated, with the bulk of these transactions coming from Cape Town as the highest followed by Johannesburg.
The depreciation in the value of the rand over the past two years has definitely made SA property more attractive to those buyers with pounds, euros or dollars to spend, chairman Lew Geffen said in a statement.
South African estate agents point to an increase in foreign buying of domestic property, which appears to have coincided with the recovery of popularity of property globally.
The First National Bank (FNB) estate agent survey continues to point to improved levels of foreigner buying of South African residential property. With regard to the major city regions, Cape Town remains the city with the highest estimated percentage of foreign buyers at 7.5% for the first half of this year, followed by Johannesburg with 4%.
FNB property analyst John Loos says that while the weakness of the rand in recent years may have made some difference to the levels of foreign buying, by making local residential property more affordable in hard currency terms, “we contend that the recovery of property’s popularity globally is the bigger driver of foreigner buying”.
SA’s residential market in recent years has become a lot cheaper for foreigners whose incomes are denominated in some of the world’s major currencies.
“This is due to a major depreciation in the rand over the past few years, which has negated any house price growth which has taken place in rand terms.
“In rand terms, 2014 has seen the FNB house price index showing year-on-year growth hovering at near to 8%. In recent months, a slowing in the pace of rand depreciation has meant that we have begun to see some stabilising in the FNB house price index in foreign currency denominated terms,” Mr Loos says.
For last month, the FNB house price index still declined year on year by -7.4% in UK pound terms, which remains significant. However, in euro terms the decline of -1.9% was marginal, while in dollar terms it has reverted to mildly positive growth of +1.1%.
Nevertheless, compared to the end of 2010, the FNB house price index is still sharply down, by 21.7% in euro terms, -19.4% in dollar terms, and -25.6% in pound terms. In short, South African property still appears to be cheap for foreign buyers.
With South African property now a lot cheaper for foreign buyers than a few years ago, some would perhaps say that it would not be surprising to see an uptick in the levels of foreigner buying in the local market.
“And indeed, this is what we appear to have been seeing. From a low point of 2% of total buying at a stage of 2010, the survey respondents have gradually raised their estimates of the foreigner buying percentage to 4% by the first half of this year.”
Mr Loos says the question remains, though, as to what extent this multiyear rand weakening has stimulated the rate of foreigner buying of domestic residential properties?
“Because, on the one hand, property has become far cheaper for these buyers, but on the other hand, the weak rand is in part reflective of a deterioration in investor sentiment towards SA, and it is tough to ascertain whether the overall impact on foreigner buying would be negative or positive,” he says.
The gradual rise in the estimated foreign buying percentage did indeed start around 2011, and it was then that the multiyear rand depreciation started to lower local home prices for foreigners.
But it was also in 2011 that a lull in the global housing market reached the bottom, and from 2012 global house prices accelerated, reflecting a recovery in residential property’s popularity as an asset class.
“Our admittedly subjective answer to the question of the role of rand weakness in boosting foreign demand is that the weakness of the rand has probably had less impact in driving foreigner buying of local residential property higher than has the property asset class’ global increase in popularity,” Mr Loos says.
Experience in SA, with regard to exports of goods and services, is that periods of rand weakness do not appear to generally show a major surge in exports. Domestic exports appear to be better correlated with global economic performance and thus demand for such exports.
“With regard to foreigner demand for residential property, we believe that the same would probably apply. Viewing the Knight Frank global house price index, we see the confirmation that the global housing market has been going through a more solid period in recent years, with house price growth having picked up speed since early 2012, recording 7.1% a year-on-year rise in the first quarter of 2014.”
Coinciding with the global house price rise from 2012 was an increase in the percentage of estate agents in the survey reporting a rise in “foreigner buyer numbers, while the percentage reporting a fall in the numbers, declined (the majority of respondents reporting unchanged foreign buying levels throughout)”.
Mr Loos says one may claim that this rise also coincides with the rand’s weakening, and by and large it does. However, back in 2008 and early 2009 the rand had also weakened significantly, causing domestic house price values to drop significantly in dollar, pound and euro terms.
“However, that time around the bottom was falling out of the global economy and its property asset class, and foreign buying activity in SA actually receded, according to surveys, through the latter half of 2008 and through 2009,” he says.
Therefore, while the weakening in the rand in recent years may have influenced some foreign “bargain hunters” to buy local residential property, “we believe that … rand weakness on its own has a limited impact on the levels of foreign buying locally”.
Rather, it is a strong global economy and high levels of popularity of property as an asset class that are likely to support this source of local property buying. So in the high-volume market of 2005, estimated foreigner buying was as high as 7% of total local home buying despite rand strength making local property relatively expensive for foreigners. Property at the time was an extremely popular asset class.
Mr Loos says the Knight Frank house price index first quarter inflation rate for this year slowed slightly on the prior quarter.
We believe that rand weakness on its own has a limited impact on the levels of foreign buying locally.
A marked increase of Foreign Property Buyers
Offshore investors looking for second homes in wealthy hot spots like Clifton and Plettenberg Bay are returning to SA after a virtual absence from 2009 to 2011.
Latest FNB figures show that sales to foreigners (as a percentage of total buyers) reached 4% in second-quarter 2014. Though that is still below the high of 7% seen in 2005, it is double the 2% low recorded by FNB in 2010.
The weaker rand has no doubt played a role. FNB property strategist John Loos says though house prices are up around 26% in rand terms since end-2010, British buyers are now paying 25,6% less in pound terms than they would have 2½ years ago.
The discounts for euro and dollar buyers are 21,7% and 19,4% respectively.
However, Loos believes the weak rand is not the key driver of the rise in foreign buying. “We believe it has more to do with the global economic recovery and property’s improved popularity as an asset class.”
Estate agents confirm the uptick in foreign buying. Seeff chairman Samuel Seeff says on Cape Town’s Atlantic seaboard sales to foreigners in first-half 2014 are up 50% year on year.
Sandton, too, has had growth in offshore buyers, mostly from oil-rich African countries such as Angola, Nigeria and Congo.
Research from Lew Geffen Sotheby’s International Realty show that offshore buyers (excluding the rest of Africa) account for as much as 11% of all sales in Atlantic seaboard suburbs such as Camps Bay, Bantry Bay, Clifton, Fresnaye and Sea Point.
Mainland Europeans, the French in particular, make up the lion’s share, followed by buyers from the UK, the UAE and the Far East.
Pam Golding Property group CE Andrew Golding says there has also been a marked increase in Chinese, Indian and Russian buyers in recent months.
He says in Plett and Knysna, on the Garden Route, there is for the first time buyer interest from Swedish investors. The latter are particularly interested in golf estate properties in the R3,5mR5m bracket.
According to Propstats.co.za, a total of 54 properties worth about R457 million were sold in the suburb this year from January to July, compared to 62 sales to the value of R451m during the same period in 2013.
Foreign and local buyers alike are attracted to Camps Bay as much by the sought after seaside location as the beautiful homes, spacious properties, well developed infrastructure and the overall laid back lifestyle of the area, says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty.
“There’s no doubt that Cape Town is a desirable holiday destination, and an immensely attractive investment prospect for foreigners who want to come here year after year, or even for those who want to retire.
“Some of the sales since the beginning of the year have been driven by the substantial depreciation of the rand, which continues to make the city an even more attractive international investment prospect. If you’re buying in euros or pounds, you’ll get far more for your money in Cape Town than you would in most sunny places in Europe. It is almost impossible to make a bad property investment in Camps Bay or the Atlantic seaboard as a whole, provided you buy right,” says Geffen.
He says that correctly priced properties will generally move fastest. In Camps Bay in the first six months of 2014 the average sale price was just more than 8 percent below the listed price and the average property price was R8.662m.
Estate agent Thelma Sandeman says the suburb is popular with buyers from around the globe, and recent purchases were made by buyers from Europe, the Far East, African countries such as Nigeria and Angola, and South Africans.
“Many people buy properties with the intention of letting them to holidaymakers, as they can get top daily rates. The most recent return on investment figures for 2012, 2013 and the first half of 2014 show an average of 14 percent a year over 7.5 years.”
“Buyers can be assured of excellent returns on investment in any price band in the suburb and in the price band below R5m the expected annual return could also be between 10 percent and 12 percent,” says agent Edith Marsh.
The first six months of 2014 saw a notable rise in the average price of homes sold in Camps Bayalbeit that there were slightly fewer sales this year across residential, holiday and foreign.
According to the property statistics website Propstats.co.za, a total of 54 property transactions worth about R457 million were concluded in the suburb this year from January to July, compared to 62 sales to the value of R451 million during the same period in 2013.
Foreign and local buyers alike are lured to Camps Bay as much by the sought-after seaside location, as the homes, spacious properties, well developed infrastructure and the overall laid back lifestyle of the area.
Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, says there’s no doubt that Cape Town is not only a desirable holiday destination, but that we’re also an immensely attractive investment prospect for foreigners who want to come in the area year after year, or even for those looking for a retirement destination.
“Some of the sales since the beginning of the year have been driven by the substantial depreciation of the rand, which continues to make us an even more attractive international investment prospect. If you’re buying in Euros or Pounds, you’ll get far more for your money in Cape Town than you would in most sunny places in Europe.
“It is almost impossible to make a bad property investment in Camps Bay or the Atlantic Seaboardas a whole, provided, that is, you buy right.”
Geffen says properties that are priced correctly will generally move fastest. In Camps Bay in the first six months of 2014 the average sale price was just more than 8 percent below the asking price and the average property price was R8.662 million.
Thelma Sandeman, a property consultant with Lew Geffen Sotheby’s International Realty, says the suburb is popular with buyers from around the globe, with recent purchases having been made by buyers from Europe, the Far East as well as resource-rich African countries such as Nigeria and Angola, as well as wealthy South Africans.
“Many buyers buy properties with the intention of letting them to tourists and South Africans alike, as they are able to obtain top dollar daily rates – proving to be a great rental return investment. Camps Bay is often referred to as South Africa’s Cote d’Azure and is one of the most popular suburbs situated on Cape Town’s Atlantic Seaboard,” says Sandeman.
She says the return on investment makes Camps Bay a lucrative option for buyers to buy and sell with an excellent gross return on their initial investment. The most recent return on investment figures for 2012, 2013 and the first half of 2014 show an average of 14 percent per annum measured over a period of 7.5 (year on year/month on month).
Edith Marsh, a property consultant with Lew Geffen Sotheby’s International Realty adds that buyers can be assured of an excellent return on investment in any price band in the suburb, indicating also that within the price band below R5 million, the expected annual return could also be between 10 percent and 12 percent.
Another reason for Camps Bay’s popularity with buyers is the fact that it offers a more practical alternative to the majority of the Atlantic Seaboard’s prestigious suburbs at a more accessible price point. The average price of property sold in Camps Bay this year is R8.5million, less than half of the R19 million average price for homes in neighbouring Clifton, according to Propstats.co.za.
When costs per square metre are taken into consideration, Camps Bay offers much more space for the same price. “This increased space is the main reason behind Camps Bay’s position as the most family-friendly suburb along the Atlantic Seaboard. Add to this the fact that the area has a number of good schools, good shopping and a bustling social scene and you’ll understand how the suburb can be said to have a reputation as a family-friendly atmosphere,” says Sandeman.
An upsurge in new developments in the area over the last decade or so has contributed to Camps Bay gaining reputation for modern, cutting-edge architecture. However, there are still a good number of more mature properties from the 1950s and 1960s which tend to offer more space and great potential for renovation or refurbishment.
According to Western Cape property aggregation website Propstats.co.za, 171 homes were sold in Hout Bay between January and August 2013 for a total of R420 million, at an average sale price of R2.4m. During the same period this year, 176 homes have been sold for a total of R514m with the average sale price for the area rising to R2.9m.
Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty says: “Those looking for property investment prospects in Hout Bay will find several options to suit them.
“Astute buy-to-let investors continue to be interested in Hout Bay and their purchase decisions are made on the basis of price, location, features and yield potential, as well as the incomparable value of owning property on the Atlantic seaboard very close to the sea.”
Claude McKirby of Lew Geffen Sotheby’s International Realty says that many locals buy in the suburb. However, tourism is a key driver of economic activity in Hout Bay, with the area attracting domestic tourists and those from European countries such as Germany, the UK, Switzerland, France and the Netherlands.
“Hout Bay is very suitable for investment property and there has been great demand for short-term lets.”
A closer reading of the Hout Bay statistics on Propstats shows that the suburb is a classic example of an area where correct pricing of property ensures a faster than average sale.
McKirby says that properties in Hout Bay have been selling very well and for close to and, in some cases, more than the listing price, which demonstrates demand and the lack of sale stock. According to Propstats, one home sold in July was for instance put on the market at R4.9m but was sold for R5.5m to a cash buyer.
“There has been a significant improvement in sales this year and many of these have been driven by young professionals moving into Hout Bay from other areas of Cape Town where they have been renting apartments. When they come to Hout Bay they tend to move into houses which they rent before eventually buying. Once people move to Hout Bay, they tend to stay,” McKirby says.
Hout Bay is a 20 to 25 minute drive from the Cape Town central city in rush hour traffic. The suburb has many restaurants, shopping centres and swimming beaches and is close to golf courses and schools, including the International School.
Surrounded by the Table Mountain National Park, Hout Bay has a small village feel about it with an active fishing harbour and many families have lived there most of their lives, whereas others who may have moved away after leaving home come back to stay as adults.
Lew Geffen Sotheby’s International Realty currently has 14 Properties for sale in Hout Bay ranging in price from R3.3m to R26m.
FINDING VALUE IN SA
Finding Value in SA. Where savvy global investors are buying. Foreign buyers bought almost R6.5 billion worth of properties in South Africa last year and the percentage of residential property sales to foreigners has doubled from 2% to 4%. Real Estate Investor Magazine spoke to Lew Geffen, Chairman of Lew Geffen Sotheby`s International Realty, about this trend.Q: What is driving increased foreign buyer activity?LG: Foreign buyers are attracted to the South African property market for a number of reasons. The first is the substantial depreciation of the Rand, which continues to make South African property an even more attractive international investment prospect. If you`re buying in Euros or Pounds, you`ll get far more for your money in South Africa than you would in most sunny places in Europe.Secondly, South Africa is a stable country that offers first-world infrastructure and amenities, coupled with breathtaking scenery and beautiful properties, offering foreign buyers exceptional value.It must also be said that these foreign buyers are astute investors with a keen eye for a good deal, and when surveying real estate opportunities globally, an investment in South Africa`s most prestigious property locations present a solid investment choice. For example, in Avenue Des Huguenots in Fresnaye, a property was bought for Euro 224,717 during 2005 and sold during 2013 for Euro 1.43m, showing a nominal return on investment of 26% per annum over 8 years. Another property in Head Road was bought during 2003 for R3.2m and also sold last year for R26m, showing a nominal return on investment of 22% per annum over approximately 10 years.These two properties were renovated by the owners before they were resold. While the days of `flipping`Lew Geffenproperties at huge profits are mostly over for now, investors are happy to buy the best land, renovate and then live in there for a few years while their investment grows.Q: Where are the hotspots for foreign buyers and what are they looking for in a property?LG: Cape Town is a desirable holiday destination, and was ranked as the top holiday destination for 2014 by British newspaper The Guardian and the US`s The New York Times. The city, and the Atlantic Seaboard in particular, is also an immensely attractive investment prospect for foreigners who want to come here again and again, or for those looking for a retirement destination. In this area, we find mainly leisure buyers who are looking for modern, upmarket properties. Buyers prefer to invest in the best location with the best views when they look for residential purchases on the Atlantic Seaboard.For this reason, many properties in this area sellingfor well over R100,000/m2, which is unheard of anywhere else in the country, even in Johannesburg where luxury homes now cost about R20,000/m2. And as long as there is demand for properties on the Atlantic Seaboard, prices will keep going up. The upmarket suburbs of Johannesburg, such as Houghton and Hyde Park, also attract the interest of foreign buyers with business interests in the country and in Africa. These buyers prefer large properties with immaculate gardens, suitable for entertaining business associates and connections.Q: Which foreign nationals are most active in the South African property market?LG: Our survey of all free-standing house sales on the Atlantic Seaboard in the past 18 months has, for the first time, given a comprehensive snapshot of precisely where buyers originate.The main buyer market is African at 79% of sales or 125 buyers, who spent R1.36 billion. A further analysis of the African market shows that 95% (or 120 buyers) were South Africans who purchased property to the value of almost R1.26 billion. These are often South Africans who are bringing back offshore money. The other 5% comprised buyers from Angola, Congo, Zambia and Nigeria, who spent R69.4 million.Mainland Europe remains a significant international source market for property sales on the Atlantic Seaboard. European property investors have spent Euro 21.9million on homes in this area. Mainland European buyers made up 12% and purchased property for Euro 13.8million (R203m) and the United Kingdom accounted for 7% for the buyers, spending Euro 8.1m (R119.33m). The remaining 2% are from the UAE (1%) spending R21.15m and the Far East, spending R12.375m.As far as the European countries are concerned, French buyers are tops with 31% of the region`s spend, which translates to Euro 4.3m (R63.4m) in sales. Next is Switzerland at 16% buying property worth Euro 2.19m (R32.25m), followed closely by Belgium at 15% (Euro 2.16m or R31.75m) and Germany at 12% (Euro 1.61m or R23.7m).The remaining 26% of mainland Europe`s buyers come from Denmark, Italy, Sweden and the Netherlands, and they collectively spent Euro 3.5m (R51.9m).The majority – in fact, more than 80% of the buyers – are also cash buyers. This is unprecedented in the SA residential property market. j|<lew_geffen_sothebys_real_estate_investor.lew_geffen.ornico>
REAL ESTATE INVESTOR 30 Sep 2014