According to the FNB Estate Agent Survey, foreigner buying of domestic property appears to have “settled down” to sideways movement, after some prior years of strengthening.
FOREIGN BUYING OF DOMESTIC PROPERTY APPEARS TO HAVE “SETTLED”
The FNB Estate Agent Survey for the 2nd quarter of 2016 appears to point to a lack of any noticeable direction in foreigner buying of South African residential property of late.
In the survey, FNB asks respondents to provide an estimate of the percentage of total home buyers that are foreigners. Using a 2-quarter moving average for smoothing purposes, the estimated percentage of foreign buyers has moved in a “narrow” range near to the 5% level over the last 3 quarters, moving slightly from 4.8% of total buying in the 1st quarter of 2016 to 5.11% for the two quarters up to the 2nd quarter of 2016, which is the same as the 5.11 of 3 quarters ago.
After a noticeable recovery in the estimated levels of foreigner buying from a 2% low late in 2010, the estimated percentage of foreign buyers peaked at 5.77% in the final 2 quarters of 2014. So recent quarters’ estimates are a bit off that 2014 estimated high.
Viewing foreign buying in a different way, FNB asks agents if they have experienced foreign buyer numbers to have increased, decreased or remained the same. In this question, they have 5 answer options, “There is a lot more foreign buying”, “a little more foreign buying”, the same amount of foreign buying”, a little less foreign buying”, or a “lot less foreign buying”.
When using this questioning, an equal percentage of agents see an increase in foreign buyer numbers compared to those seeing a decline, and, the percentage of agents seeing an increase has shown a declining trend since a peak reached in the final quarter of 2014.
In the 2nd quarter 2016 survey, 1% of respondents perceived “a lot more foreign buyers”, 9% “a little more foreign buyers”, 81% saw “unchanged foreign buyer levels”, 8% indicated a “little less foreign buyers” and 2% a “lot less foreign buyers”.
This means that 10% of agents pointed to “more foreign buyers” and 10% “less foreign buyers”. This distribution represents a weakening from a high back in the 4th quarter of 2014, where 16%% of agents surveyed had pointed to “more foreign buyers” against 2% saying “less foreign buyers”.
Taking the quarterly distributions, FNB constructs its Foreign Home Buying Confidence Index on a scale of -2 to 2, where +2 would imply 100% of respondents claiming a “lot more” foreign buyers and -2 meaning a 100% saying a “lot less”, with all the other possible distributions somewhere in between. This index’s value has declined from a +0.17 high at the end of 2014 to -0.01 by the 2nd quarter of 2016.
The index is thus very slightly, but insignificantly, negative, suggesting agents as a group point to more-or-less sideways movement in foreign buyer numbers, after the pace of growth had broadly slowed over the past year-and-a-half.
Therefore, the lines of questioning regarding foreign home buying suggest a more-or-less sideways movement in recent times, or at least no further strengthening, after a prior strengthening trend through 2012 to 2014.
AFRICAN CONTINENT BUYING
Of interest is the ongoing gradual change in the key sources of foreign buying over the longer term, with more coming from the rest of the African Continent in recent years.
Foreign buying of SA property by African Continent buyers saw its share of total foreigner buying decline mildly in the 1st half of 2016 to 27.5%, from a 2-quarter moving average of 31% for the 1st quarter of 2016.
However, this latest percentage remains high compared to a mere 8.5% as at 2010.
FOREIGN BUYING PERCENTAGE BY MAJOR REGION
Splitting up the survey by major region, and adding Namibia as a comparison, for the 1st 2 quarters of 2016 Cape Town region remains the major South African region with the highest percentage of estimated foreign buying, to the tune of 8%.
However, Namibia’s estimate remains significantly higher than that of South Africa, measuring 13% of total home buying in that country, compared to SA’s 5%.
Namibia’s higher estimate in this regard is possibly very much a reflection of a significantly higher economic growth rate in that country in recent years, compared to South Africa, which can be a magnet for foreigner investment in various forms.
BREXIT JUST MADE SA PROPERTY A BIT MORE PRICEY….FOR UK RESIDENTS AT LEAST
Although South Africa has never been a major residential investment destination for foreigners, as far as foreigner buying in South Africa goes we perceive buying from residents of the United Kingdom to have been a significant source of demand.
Therefore, the “Brexit” vote in which UK residents voted to leave the European Union may indeed have had some mild impact on UK resident demand for property in South Africa, insofar as currency fluctuations have any impact.
This is because “Brexit” just made South African property instantly more expensive for those buyers operating in UK Pounds, due to the big impact that the referendum outcome had in weakening the Pound.
Whereas in July 2016, the FNB House Price Index denominated in Dollar terms declined year-on-year by -7.4% and the Euro-denominated Index by -8%, the UK Pound-denominated FNB House Price Index rose by a very significant +9.6% year-on-year.
This sharp jump in domestic house price inflation for Pound investors comes largely from a post-Brexit vote drop in the Pound from a GBPZAR22.33 average in May to GBPZAR18.95 average in July 2016.
However, part of the story has been a noticeable recovery in the Rand, too, following the currency’s “Nenegate” slump late in 2015.
GLOBALLY, PROPERTY HAS SETTLED DOWN SOMEWHAT SINCE A PEAK OF STRENGTH LATE IN 2013
Whilst fluctuations in the Rand exchange rate, which cause movements in domestic house prices for aspirant foreign buyers, can conceivably influence foreign buyer levels, FNB believea that it is the popularity of property globally as an asset class that has the major influence.
And since around late-2013/early-2014, globally property has gone “off the boil”, it would appear. Using the Knight Frank Global House Price Index, the post-2008/9 recession peak in global house price growth was reached in the 3rd quarter of 2013 measuring 6.3% year-on-year.
By the 1st and 2nd quarters of 2015 the rate of increase had subsided to 2.1% before recovering somewhat to 3.4% early in 2016.
CONCLUSION
FNB’s Estate Agent Survey points to a previous strengthening in foreigner buying of domestic residential property as having more-or-less come to an end.
Part of this seeming lack of further strengthening may have to do with a recent recovery in the Rand exchange rate since January, which raises the cost of local property for aspirant foreign buyers, especially for UK buyers who have suffered from a post-Brexit Referendum Pound weakening.
However, FNB remaina of the view that the performance of residential property globally influences its popularity as an asset class, and is the key influence on foreigner buying direction. FNB says this because the agent survey suggests that growth in foreigner buying had turned slower since 2014, despite further rand slide all the way up to the end of 2015. What had changed earlier, from 2014 onward, was slower global house price growth.
Read more here: FNB Property Barometer_Foreign Buying_4_Aug_2016
