According to some property analysts, the escalating cost of South African property can be attributed to the buying power of foreigners. These property analysts disagree on the extent of the influence these foreign investors may have. But is this the truth, or just a myth?
Against this backdrop, in which foreign real estate investors are depicted as villains, the office of Land and Agriculture Minister Thoko Didiza earlier made some noises about plans to limit foreign property ownership in South Africa. If government was to act on these rumours, it might be a grave mistake. I do not believe that the extent of foreign property ownership in South Africa is large enough to be an important contributing factor towards the spiralling South African property prices.
Foreigners Don't Compete With Average South Africans
Foreign real estate investors generally do not buy South African property in the widely affordable residential property market valued at under R1 million. Foreign Investors tend to invest in expensive and very exclusive properties in the highest portion of the South African real estate market. Typical foreign real estate buyer purchases range from R3 million and higher.
But the biggest stock shortages and highest demand, which is a sure recipe for price increases, are being experienced in the sub-million residential property market. So, the booming economy in South Africa, and the growing spending power of the emerging black middle class property buyers are more likely to be the main factors fuelling property prices in South Africa.
Local And Foreign Investors Spot Good Deals Early
No one can deny that property investors, including foreigners and Gauteng investors, are some of the first people to spot good investment opportunities and act on them.
The huge demand for properties in formerly relatively inexpensive areas such as the East London and Port Elizabeth areas reflect this fact. But rather than raising the prices of real estate beyond all reasonable levels, I believe that the increase of property prices in these areas are simply bringing property prices in the Eastern Cape area on a par with the rest of the desirable real estate on the east coast of South Africa. Because there was a delay in property price increases in the East London and Port Elizabeth areas, compared to other areas, it became increasingly attractive to property investors, and resulted in a big boom.
Both East London and Port Elizabeth are experiencing strong economic growth in their industrial spheres. This means that jobs are being created and residential property is therefore in higher demand. Government employees who lived in the former Transkei and Ciskei areas also buy property in East London and Port Elizabeth, which increases the demand for housing even further.
There has also been some speculation that the beachfront in East London and the central business district of Port Elizabeth could be earmarked for tax incentives and relief, as part of the South African Government's City Centre Rejuvenation Programme, making these areas more attractive.
Prices Will Continue To Increase
As interest rates are not expected to increase in the foreseeable future, I predict that property prices will continue to increase accordingly. Unless inflation is eliminated as a source for general salary increases, property prices will also continue to inflate.
High petrol prices might take a larger bite out of consumer pockets, reducing their ability to afford higher prices, but this would also make properties close to business districts more desirable, causing those prices to rise.
I think there's much more to high property prices in South Africa than simple foreign investment. Foreign property investors are not villains.
