The beautiful wine farms of the Cape are much more than just agricultural land. Aside from producing grape and related products and bringing foreign currency into the country, they are also a vital tourist attraction for the Cape.
As the Expropriation Bill gathers momentum, it is perhaps a good time to reflect on the potential impact of government’s plans to restrict foreign ownership of agricultural land and the effect that expropriation could have.
Seeff chairman Samuel Seeff says that the effect could be quite adverse insofar as the Cape wine industry is concerned. The Cape’s wine farms are not just agricultural farms, but also a vital part of the growing tourism sector.
“Foreigners have been keen investors in the wine regions of Stellenbosch, Franschhoek, Paarl and Wellington, but they did not just buy farms already in production with top class wine brands, beautiful historic buildings and tourists flocking there”, says Seeff.
Much of the development of the wine region has in fact been driven by foreign and corporate investment. These investors brought the capital that rehabilitated and developed the wine farms and tourism infrastructure to international standards. And, with that has created a whole agricultural sector that provides and sustains skilled and semi-skilled jobs, tourism and vital economic spin-off benefits.
While the overall percentage of foreign land ownership is estimated at around 5% of all land ownership at best, it is somewhat higher when it comes to the wine farms.
André Malan, Seeff Winelands/Boland, Agri-agent says that foreign investors also brought vital expertise and entrance to overseas markets to the wine industry. By exporting wine, the farms earn foreign exchange on an ongoing bases, money that flows into the country, he adds.
Stellenbosch is the premier wine region with about 100 wine and wine grape farms of which about 25% (20-plus) are foreign owned, says Malan. Foreigners tend to mainly own the wine estates as the returns are better than the wine grape farms. They export a major portion of their wines to their countries of origin.
“Franschhoek is especially popular with about 30% (12-plus) of the more than 40 wine estates and wine grape farms owned by foreign investors”, says Malan. Here too, it is mainly the wine estates, those that actually produce and market the wine brands that are foreign owned.
The picture is similar for Paarl and Wellington, where an estimated 30% (23-plus) of the 78-odd wine estates are foreign owned.
Malan notes that foreign investors play a significant role in the making and marketing of South African wine that has become a notable foreign currency earner for the Cape economy.
Aside from the export component, the farms are a major tourist attractions, drawing visitors from across the globe who bring US Dollars, Euros and British Pounds.
Seeff says that foreign ownership per se does not influence the price of agricultural land. It is the normal market forces of supply and demand that determine the price that a buyer or investor pays. If there is high demand and very little on the market, it follows that sellers can ask and achieve higher prices. Conversely, if there is a sudden flood of listing, say as a result of negative sentiment, then the price is likely to drop.
Aside from affecting the sentiment and appetite of foreigners to invest in the country, a move to force foreigners to sell or expropriating their land, will almost certainly adversely affect the wine industry.
Malan says that wine exports could be negatively influenced by countries presently buying South African wines such as Germany, the UK, France, the Netherlands and the USA as many of the farms are currently owned by nationals from these countries.
“South Africa operates in a global environment and these countries can decide to buy/source their wine from elsewhere. There are many wine producing industries in the world in the same New World Wines’ category as South Africa and it is a competitive business”, says the agent.
South Africa produces less than 5% of the world consumption. The per capita consumption within South Africa itself is as low as 8 litres as South Africans are traditional beer drinkers. For European wine-drinking countries, it is above 20 litres person per year. It therefore follows that the domestic wine market is not going to sustain the sector.
Melina Visser, Franschhoek agent adds that a ban on foreign ownership of agricultural land will not just affect investment in agricultural properties, but will affect the perception of general investment in South African property. This may impact on the sale of high end homes in the Franschhoek and surrounding areas and could bring about a dip in demand and pricing.
The wine and tourism sectors of the Cape has expanded year-on-year and with that the interest in property across the Boland and Wineland areas. Nelia Retief, Tulbagh agent for example says that foreign buyers are now also heading to this valley to invest in property, a move that would bring compounding economic and job creation benefits to the area.
The winelands are home to some of the most sought-after property in the country and while the property values have grown notably over the last few years, the prices still compare well with the top end residential areas such as the Atlantic Seaboard.
A rare 48ha wine farm with a beautifully restored 1900s Sir Herbert Baker Cape Dutch manor house located directly opposite L’Ormarins at the entrance to the Franschhoek Valley is still somewhat of a snip at R39 million according to agents, Kevin Layden and Esme Wildman.
The home enjoys Berg River frontage and spectacular views of the surrounding countryside and mountains. About 10ha is planted with vineyards and a further 4ha with pears, all irrigated from the Berg River. There are additional buildings on the farm including garages, a cottage and a conference/games centre.
Along with Stellenbosch, the Franschhoek/Paarl Valley rank as the country’s most sought-after wine area and it is home to some of the most prestigious wine farm brands such as Babylonstoren, Backsberg, Boschendal, Haute Cabriere and La Motte.
Layden and Widman note that although the property is an excellent investment buy as it is, it also offers excellent development potential including expanding it into a boutique wine estate or just developing further hospitality facilities.