There has been a strong response to news that government plans to start holding talks on limiting foreign ownership of real estate in SA to combat spiralling land and property prices, writes MICHELLE SWART

RECENTLY, the office of Land and Agriculture Minister Thoko Didiza announced plans to limit foreign property ownership in SA. These plans are being proposed to curb escalating property prices, which Didiza attributes to the buying power of foreigners who are pushing up property prices in SA.

Engel & Völkers urges government to lay off foreign property investors and explore real reasons for rising property prices in SA.

Patrick O'Shea, CEO of Engel & Völkers Western Cape, says measures of incentivising property ownership, including making home ownership more accessible to all sectors of the South African population, should be examined.

O'Shea refers to the fact that before 1994, as well as during the period from 1994 to 2000, a very small percentage of South Africans were able to purchase property.

This was primarily due to the fact that many population groups were precluded from buying property by virtue of apartheid legislation. He goes on to explain that "as the country's emerging new' middle class unfolds and as other population groups are now buying in historically white' areas, demand is far exceeding supply and forcing prices upwards".

O'Shea points to additional factors that are contributing to property price increases, which grew at an average of 22,7% in the past year, according to Researchworldwide.com.

"These include the movement of South African funds from the poorly performing stock market into property, South African insurance money' is now being channelled into property and amnesty money' is now being repatriated to this country," he explains.

With both building and labour prices expected to rise as builders' wages are brought more in line with international building standards, O'Shea predicts that this will also impact on the rising cost of homes.

O'Shea says "SA's status as one of the fasting growing property markets in the world should be considered a positive result of the South African economy, and not simply a phenomenon to be blamed on foreign' buyers".

O'Shea lists the real facts surrounding foreign property ownership in SA as

follows:

Currently, less than 8% of property purchases in SA are made by foreigners.

Many of these "foreigners" are, in fact, former patriots and returning South Africans.

Foreign purchasers generally do not buy in the broad, widely affordable market pegged at under R1m.

The sub-R1m real estate market is, in fact, where the greatest stock shortages and highest levels of consumer demand are being experienced. This is a trend attributed to the rapid growth of the new South African middle class and not a function of foreign buyer activity.

In fact, according to Engel & Völkers, typical foreign buyer purchases range from R3m upwards.

The dollar spend is in no way contributing to spiralling property prices, especially since it has dropped to an all-time low against the dollar.

Ian Slot, Western Cape Regional and National Committee Chairperson of Seeff Properties has responded to this news as follows: "Xenophobia is xenophobia, irrespective of whether it surfaces in squatter camps or in Camps Bay. Where are the empirical studies or evidence to prove that foreign ownership is in fact pushing up prices? Even if this were the case, where are the studies showing that this is bad for the economy, or for the country as a whole?

"If Didiza is quoted correctly through her spokesperson, then she is inviting us to participate in talks about a potential solution to the problem, but she hasn't established that there is, in fact, a problem. It is like deciding what medicine to prescribe without bothering to find out if anyone is sick.

"If government wants to get involved in real estate it need not concern itself with that end of the market. Rather, it should address the concerns of those who want to get into the market for the first time.

"We reiterate our call for a subsidy for first-time buyers, utilising the money that has poured in from the transfer duty, VAT and capital gains tax that is being generated by this active property market. The properties that foreigners are looking at buying are not those being snapped up by first-time buyers, but it is the active and buoyant market which is facilitating construction and development of more affordable housing.

Government has done so well in stabilising our currency and establishing SA as an excellent investment location. Whatever comes of these discussions, merely raising doubts and adding the spectre of retrospective action against foreign owners is negative and such a pity when we have some such a long way."

Rod Pringle, director of County Homesearch International SA, a company that helps and acts on behalf of property buyers and/or tenants and provides protection to the buyer from vendors and estate agents, feels that foreign investment is a phenomenon that is misunderstood. He says in the UK economic growth has been driven by the increasing property prices. "The release of equity in homes provides a feel good' factor," says Rod, "which in turn encourages people to borrow on the value of their homes, thereby driving economic activity."

This could also be said for SA. Pringle concludes that the rising property prices are a good thing that can only enhance the economy.

Jul 02 2004 08:24:34:000AM Business Day 1st Edition