Research

Residential demand conditions – home buying by foreigners

The FNB Estate Agent Survey for the 1st quarter of 2017 pointed to a slightly higher estimate of foreigner buying of homes in SA, compared to the previous quarter.

From 4.45% of total home buying in the final quarter of 2016, the estimated percentage of home buyers believed to be foreigners in the 1st quarter 2017 Estate Agent Survey rose slightly to 4.89% of total home buyers.

This percentage is also slightly higher than the 4.67% estimate for the 1st quarter of 2016, 4 quarters ago.

The move is not a meaningful one, however, as this percentage estimate can be volatile from quarter to quarter. Using a 4-quarter moving average for smoothing purposes, the estimated percentage of foreign home buyers for the 4 quarters up to the 1st quarter of 2017 was 5.23%, insignificantly higher than the 5.18% of the 4-quarters up to the end of 2016, but perhaps a little more noticeably up from 4.75% for the 4-quarters up to the 1st quarter of last year.

FNB poses an additional question to the agents, asking them to state whether they have experienced “a lot more foreigner buying”,  “a little more foreigner buying”, an “unchanged level”, “a little less”, or “a lot less” foreigner buying compared to 12 months ago.

The aggregated response showed a mild bias towards more foreigner home buying. 10% of agents experienced more foreigner buying (3% saying a “lot more” and 7% saying a “little More”) while 7% of agents pointed to less foreigner buying (7% saying a “little less”), 87% returning an “unchanged” verdict.

FNB uses these responses to compile their Foreign Home Buying Confidence Index.

A “lot less foreign buyers” in the past 12 months receives a -2 rating, a “little less” receives a -1 rating, “unchanged” receives a zero rating, a “little more” foreign buyers receives a +1 rating, and a “lot more” foreign buyers receives a +2 rating.

FNB then aggregates these ratings to calculate the Foreign Home Buying Confidence Index level, which is on a scale of -2 to +2.

The 1st quarter 2017 Foreign Home Buyer Confidence Index rose to +0.09, from a previous quarter’s level of  -0.016, reflecting the bias in the survey responses towards a slightly stronger level of foreigner home buying.

If one takes into account that the estate agents have been pointing to a mild rise in the overall level of activity in the residential market over the past 2 quarters’ surveys, then a slight increase in the estimated percentage of foreigner home buying, along with the latter survey response, could point towards a mild  increase in the overall level of foreigner buying interest in the 1st quarter of 2017. The change is not overly significant though.

This is perhaps interesting, given that a significant Rand strengthening through 2016 to early-2017 has made South African homes significantly more expensive to foreigners in their own currency terms.

In Rand terms, average house price inflation by February 2017 was virtually non-existent at 0.8% year-on-year. However, it was a different story when converting the FNB House Price Index into foreign currency terms. In Euro terms, the FNB House Price

Index rose by 24.3% year-on-year, in Dollar terms by 19.3%, and in UK Pound terms by 36.5% (The Brexit impact) year-on-year in February.

This means that SA property has become significantly more costly for many foreigner buyers.

However, it is perhaps less about cost and more about sentiment. And, while sentiment towards South Africa is not very positive at present, the strengthening in the Rand since its Nenegate shock in late-2015 in part reflects some improvement in investor sentiment towards South Africa off a low base, and it could be this mild improvement that is not only being reflected in the Rand but also in the housing market in terms of a small strengthening in foreigner demand. The quarterly move in the estate agents’ estimates is, however, small.

Read more here: Property Barometer – Demand Conditions – Foreign Home Buying – March 2017