Government plans to hold talks on limiting foreign ownership of real estate in South Africa to combat spiralling land and property prices are misguided, say property industry spokesmen.

Ian Slot, Western Cape regional and national committee chairperson of Seeff Properties, described the move as xenophobia. "Xenophobia is xenophobia, irrespective of whether it surfaces in informal settlements 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 the land and agricultural minister Thoko 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 anybody is sick," said Slot.

"If government wants to get involved in real estate it need not concern itself with that end of the market - they 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, using the money that has poured in from the transfer duty, VAT and capital gains tax that is being generated by this active property market."

Dr Andrew Golding, chief executive of the Pam Golding property group, said the timing of the statement was "unfortunate", coming soon after Irish investors had announced that they were pouring millions of rands into the Cape Town CBD.

"The claim by the spokesperson for the minister that foreigners are responsible for price increases and making property unaffordable for South Africans is highly questionable," said Dr Golding. He said less than 1% of all properties sold in South Africa were bought by foreigners and that they accounted for about 10% of sales by Pam Golding Properties, which has a significant share of the foreign buyer market.

"The other side of the story is that investment by foreigners is an overwhelmingly positive phenomenon, and President Mbeki has said he is trying to encourage foreign direct investment," Golding said. He said property purchases by foreigners also led to indirect investment in the form of spending on home improvements, renovations, restaurants and hotels, which helped to sustain jobs.

"In addition, foreign buyers visit their home countries and become ambassadors for South Africa - the positives are huge." Dr Golding said foreigners may help to drive up prices in certain areas, but that the property market was overwhelmingly driven by local sentiment.

Bill Rawson, chairman of the Rawson Property Group, said complete unambiguous clarity on South Africa's attitude to foreign property ownership - and, indeed, general investment in South African assets by foreigners - was now absolutely essential following several months in which "the President has given one message, while certain of his cabinet ministers have given another".

"Only those who have been overseas regularly," said Rawson, "will know just how damaging to investor confidence the kind of ambiguity that has prevailed recently can be. "There is a lurking fear in the minds of Europeans, Americans and others that, although South Africa undeniably has one of the most enlightened constitutions in the world and although we in theory respect land ownership and free market principles, in practice we might still go the route of Zimbabwe or, more recently, the route that Namibia is rumoured to be considering.

"Investors have to be given a categorical assurance on these matters - even if this does result in South Africa's left wing being antagonised." Rawson said talk of converting freehold to 99-year-old leases or of limiting foreign ownership in one way or another, almost as if it is a privilege to put one's money here, is not the message the market needs to hear.

Tony Bales, joint managing director of ChurchillMurray Properties, said estate agents may have to warn prospective foreign property buyers that government is considering passing a law to limit the foreign ownership of land. "The code of conduct for estate agents as scheduled in the Estate Agents Act 1976, section 4.1.1 states that agents have a duty to disclose to a prospective purchaser all facts within his or her personal knowledge and which are or could be material to the sale and or purchase of the property," says Bales.

"The fact that government has announced that it is considering limiting foreign ownership means that agents need to disclose this knowledge which is hardly in the best interests of making a sale." Didiza's spokesperson, Nana Zenani, said one suggestion was to introduce a system of 99-year leases for foreigners - but added that government had not yet considered whether to make the law retrospective for existing foreign title deed holders.

Lawyers say such a law would not apply to foreign property owners with permanent residence status. They add that any attempt to deprive existing holders of freehold title deeds would clash with South Africa's constitutional law. The announcement has been greeted with dismay by all sections of the business community, with one political analyst saying that talking about South Africa's delicate land issue in this way looked like a case of "foot in mouth".