Research

Property Barometer – The ‘Foreign Effect’ on the domestic property market

The third Quarter 2017 FNB Estate Agent Survey showed further hints of slowdown in foreigner buying of South Africa property.

In the survey, FNB asks the sample of agents surveyed (predominantly in the six major metros of the country) to estimate the number of foreign citizens buying homes domestically as a percentage of total home buying. The third quarter 2017 estimate was significantly lower than the second quarter estimate, dropping from 4.92% in the previous quarter to 3.31%.

FNB does not place too much significance on such a quarterly move, because quarter to quarter estimates can be a bit volatile.

However, on a less volatile fourth-quarter moving average basis, FNB has also seen some decline in the estimated percentage of foreign buyers, from 5.28% for the four quarters up to and including the third quarter of 2016 (the highest fourth-quarter average since the third quarter of 2009), to a lower 4.92% for the fourth-quarters up to the third quarter of 2017.

FNB have a follow up question in the survey which also hints at slowing foreigner buying. In this question, the survey respondents are asked whether they perceive an increase, decrease or unchanged level in foreign buyer numbers compared to twelve month ago.

The responses were biased very slightly in favour of “less foreigner buying” in the third quarter survey. 84% reported “unchanged levels” (“unchanged” is normally by far the largest response). 3% of agents reported a “lot less” foreign buyers and 5% reported a “little less”. That totaled 8% of respondents indicating less foreign buyers from a year ago. By comparison, 6% of respondents reported “a little more” foreign home buyers and 2% “a lot more”. This means 8% perceiving more foreign buyers too, but it was 3% saying “a lot less vs 2% saying a “lot more”, keeping the bias very slightly in favour of “less foreign buyers), as has been the case in four of the past six quarters.

FNB aggregates the agent answers into what they call their Foreign Home Buying Confidence Index, depicted on a scale of +2 to -2. A level of +2 means that 100% of agents state a “lot more foreigner buying”, -2 reflecting 100% stating a “lot less”, and with a zero level indicating that on average the agents are saying that levels are unchanged from twelve months ago.

The index was at its strongest positive level of +0.17 as at the final quarter of 2014, having climbed to that level starting around 2012 and reflecting prior years’ improvement. However, since 2015 this indicator’s level has fallen, and in four of the last six quarters it has been in negative territory. The third quarter 2017 level was only slightly negative, to the tune of -0.01, following on a -0.12 level in the preceding quarter.

Expat buying local property has also been on a gradual broad declining trend

A second set of foreign-related buying questions that FNB poses to the sample of agents relates to the levels of buying of domestic residential property by South African expats living abroad.

Here, too, FNB have seen a decline, although this broad declining trend seems to have been gradual and over a longer duration, having started back in 2015.

In the final quarter of 2014, the estimated level of Expat buying was 2.93% of total home buying, with the fourth-quarter moving average up to that quarter being 2.42% of total buying.

This percentage has gradually slowed to where both the quarterly estimate and the fourth-quarter moving average measured 1.42% in the third quarter of 2017.

FNB have a follow up question in the survey, similar to the follow up question in the case of foreign buyers. In this question, the survey respondents are asked whether they perceive an increase, decrease or unchanged level in foreign buyer numbers compared to twelve months ago.

The responses in the past six out of seven quarters have been biased in favour of “less expat buying”. In the third quarter survey,  92% reported “unchanged levels” (“unchanged” is normally by far the largest response). 1% of agents reported a “lot less” expat buyers and 4% reported a “little less”. That totaled 5% of respondents indicating less expat buyers from a year ago. By comparison, 2% of respondents reported “a little more” expat home buyers and 1% “a lot more”. This means 3% perceiving more expat buyers vs 5% saying “less”.

This bias in favour of “less expat buyers” is small, and diminished from the previous quarter. However, the bias in favour of “less expat buyers” has been in place for the past six out of seven quarters, which becomes significant.

FNB aggregates the agent answers into what they call their Expat Home Buying Confidence Index, depicted on a scale of +2 to -2. A level of +2 means that 100% of agents state a “lot more expat buying”, -2 reflecting 100% stating a “lot less”, and with a zero level indicating that on average the agents are saying that levels are unchanged from twelve months ago.

The Index level for the third quarter was a slightly negative -0.02, a little less negative than the -0.06 of the prior quarter, but nevertheless sustaining the bias in favour of “less expat buyers”, a noticeable turnaround from the sustained positive period from late-2010 to end-2014.

In short, both foreigner buying of domestic residential property as well as South African expat buying of local property are perceived to have moved gradually weaker, the former since late-2016 and the latter since back in 2015.

FNB believes this weakening to be reflective of a dampened investor sentiment towards South Africa in general, which in turn is the result of the country’s multi-year economic stagnation, uncertainty regarding future economic policy, and widely publicized negative news such as the recent sovereign rating downgrades to “junk status”, with further rating downgrades mooted as a possibility.

Read more here: Property Barometer Foreign Home Buying – October 2017