28 Jun 2004 :

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

Patrick O’Shea, CEO of Engel & Völkers Western Cape - an international real estate company with over 110 offices worldwide, is urging government to re-consider such moves by exploring the real facts of foreign property ownership in SA which, he says, is not a contributing factor towards the country’s spiraling property prices.

Instead, O’Shea is recommending that measures of incentivising property ownership including making home ownership more accessible to all sectors of the South African population, be examined. O’Shea refers to the fact that prior to 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 ‘new’ emerging 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 (source: 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 channeled 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. This is well-illustrated in the comparison of wages earned by local bricklayers, to the union rate of 17.80 Euros/hr (amounting to approximately R20 000 per month) earned by bricklayers in Europe.

O’Shea concludes that “South Africa’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 South Africa are made by foreigners.

Many of these ‘foreigners’ are in fact ex-patriots and returning South Africans.

Foreign purchasers generally do not buy in the broad, widely affordable market pegged at under R1million.

The sub R1million 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 R3million upwards.

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

Engel & Völkers Western Cape is the first Black Empowered company in the real estate industry.