South African property on the international radar screens
A lot of the talk leading up the Fifa World Cup in South Africa focused on the expected economic benefits, job creation and investment opportunities that were bound to flow as a result. While only time will show the true magnitude of the impact, the overall effect from hosting the tournament will be positive.
The property sector, in particular, is one that was initially touted as one of the beneficiaries of international visitors flocking to the country – most for the first time. Many homeowners eyed the four-week window as a significant opportunity to cash in by letting their houses to foreigners. Others considered this the perfect opportunity to sell their property to Dollar, Euro or Pound-laden visitors who immediately fell in love with the country, its climate and its people.
The reality has been a far more muted affair with significantly fewer visitors turning up than initially expected. Which is not to say South Africa is not a desirable destination, just that the initial euphoria clouded sensibility somewhat. What the Fifa World Cup has done, however, is to heighten awareness and demand for South African properties in the long run.
Craig Hutchison, CEO of Engel & Völkers Southern Africa, points out that while foreign ownership of local properties is not as high as may be expected, it has shown staggering growth over the past five years.
He points to a study conducted last year by property market analysts Lightstone, which showed that only about 35 000 foreigners owned little more than 30 000 properties in 2009, representing about 1.62% of privately held properties valued at R500 000 or more. This is up from only 2000 properties held by foreign investors in 2004.
This seems to be considerably smaller than the level one would expect based on the coverage that foreign ownership gets in the media. There are some shortcomings in the definition of foreign ownership (it excludes ownership of properties through legal entities) however it is unlikely that these would play a significant role in boosting overall foreign ownership numbers.
The study showed that the highest level of penetration in coastal estates (5.85%) followed by coastal sectional title units (3.74%). Lightstone deduces that these properties are mainly for holiday purposes.
The Western Cape boasts the largest number of foreign investors, with about 45% concentration, followed by Gauteng with almost 35%. From here, foreign participation in the property market falls quite significantly to around 10% in KwaZulu-Natal, 5% in the Eastern Cape and less than 1% in Mpumalanga.
“The growth to more than 30 000 international investors in five years is certainly significant,” he says. “The question that remains to be answered is what growth can be expected following the soccer-fed mania that has swept the country and to what extent the foreign visitors will return as investors.
“It would be difficult for them not to realise the potential in the country, which is underscored by the substantial infrastructure investments made by national and provincial government in preparation for the World Cup. This investment has not been restricted to stadia and facilities for the soccer showpiece, so there will be continued and long-term benefits to the country as a whole.”
The exposure that the many thousands of visitors had to the country and the many more millions who watched on television is definitely expected to have an effect on the appeal of the country as a property investment destination.
“There are obvious attractions for international property investors that make it worth their while to buy property in South Africa,” he says. “Aside from the many splendid natural wonders, beauty and excellent climate, currency exchange rates and generally lower interest rates in their home countries make South Africa very appealing.”
He notes that the geographical spread of games around the country will also contribute to visitors experiencing life and opportunities outside the main centres.
“We can’t deny that the World Cup will benefit the country and economy, it is now for professionals in the property industry to make the most of the opportunities this presents.”