Foreigners and expats turn away from Cape Town property market

Property sector - []

The FNB Estate Agent Survey shows a cooling off in foreigner and expat buying of local property over the past several years, particularity in Cape Town.

Using a two-quarter moving average in order to reduce quarterly volatility in the data, the estimate was 3.96% of total home buying for the two quarters up to and including the 4th quarter of 2017. This is slightly down on the third quarter’s 4.1%, and more significantly down on the 5.8% high reached in the final quarter of 2016, the lender said.

“In recent times, we have been asked many questions as to the Western Cape drought, and its potential impacts on that region’s housing market, including whether foreign buyers have been losing interest in that region due to the drought conditions and an acute water shortage in the City of Cape Town.

“All we can say is that the estimated foreigner home buying percentage in Cape Town, as in the case of the national percentage, has declined in recent quarters too, from 8.9% for the two quarters up to and including the first quarter of 2017 to 5.5% of total home buying by the final quarter of last year, according to that region’s sample of agents surveyed,” said property strategist, John Loos.

“However, the fact that the national estimate has also declined makes us reluctant to conclude that drought conditions in Cape Town have played any significant role in this to date. Rather, we suspect that the weak sentiment dominant among the investor community, the business community as well as consumers, towards South Africa through 2017 was more likely to have played a key role,” he said.

FNB said that the weak sentiment was influenced by, among other factors, a weakened rand, a weak economic performance, and a distinct lack of political and policy direction, contributing to widely publicised ratings agency downgrades to “junk status”.

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

“Here, too, we have seen a decline in recent years, although this broad declining trend seems to have been gradual and over a longer duration, having started back in 2015,” said Loos.

In the final quarter of 2014, the estimated level of expat buying was 2.65% of total home buying using a two-quarter moving average.

This percentage has gradually slowed to where both the quarterly estimate and the two-quarter moving average measured 1.465% in the fourth quarter of 2017, albeit that this latest percentage is marginally higher than the prior quarter, the analyst said.

“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 through 2017, the latter weakening gradually through 2016 too,” said Loos.

The perceived national weakening in both of these categories of demand, which included declines in recent quarters in Gauteng too, make it impossible to conclude that drought conditions have to date played a major role in curbing foreign demand in Cape Town.

“We have started 2018 with a noticeably more positive mood in South Africa, which has been in part reflected in a stronger rand. Leadership change in the country’s ruling party may have been partly responsible for the positive mood swing, while leading business cycle indicators have for some time also hinted at improved near term economic performance to come.

“Should this improved sentiment continue through the year, it is possible that foreigner interest may improve. However, should the Western Cape drought not be broken this winter, it would be a dire situation for that region which could well start to impact negatively on Cape Town-specific foreign buyer demand, Loos said.