SA property value still excites expats

South Africa is among the top 20 most popular destinations in the world for expatriates, and one of the main reasons is because SA real estate still offers really excellent value for money, despite sharp house price declines in other countries over the past few years.

According to the latest Expat Explorer survey by international bank HSBC, South Africa ranks 14^th out of 100 countries included, in terms of the economic benefits it offers expats and their overall experience of life in SA.

And from our own experience we can confirm that foreign immigrants to SA and those who are posted here to work on contract for a few years are generally excited by how much real estate their money can buy here in comparison to other popular expat destinations around the world.

For example, even in the US, which was ranked 11^th in popularity among expats as against SA’s 14^th placing, the average home price at the moment is around US$170 000 - or about R1,4m at current exchange rates, while SA’s current average, according to Absa, is about R1,1m.

In the UK (ranked 27th), the average house price is currently the equivalent of about R2m and in the most popular European countries such as Germany (ranked 28), France (29), Italy (30) and the Netherlands (31), prices for average properties range between about R40 000/sqm to about R146 000/sqm, compared with the average of R28 000/sqm for a medium-size home in SA.

In the other BRICS countries – all of which were ranked well below SA in the HSBC survey – property prices currently range from around R24 000/sqm in Brazil to R109 000/sqm in Russia, according to the latest information available from the Global Property Guide, www.globalpropertyguide.com.

As for Thailand, which was ranked as the number one choice of destination by the respondents to this year’s HSBC survey, the average home cost is currently actually the same as in SA at around R28 000/sqm.

But the housing market in the country is still very underdeveloped and there are huge discrepancies between the various areas. A small three-bedroom townhouse in the coastal resort of Pattaya would cost the equivalent of about R560 000 at current exchange rates, for example, and a modest three-bedroom, two-bathroom home on the popular retirement island of Phuket would cost the equivalent of about R800 000, which compares favourably with SA.

However in the main cities of Bangkok or Chiang Mai, where most working expatriates would need to be based, it would cost anywhere between about R1,6m and R2,8m to buy a three-bedroom flat big enough for a family.

*Lew Geffen is the chairman of Sotheby’s International Realty in SA.

Strong foreign interest in SA property

Despite the precariousness of the world’s economy, there is still a lot of foreign interest in South African property, with investors from the United Kingdom, Germany, Australia and even the USA eyeing property here.

A recent analysis of traffic on the Lew Geffen Sotheby’s International Realty website shows that the number of international visits to the website is on the up.

The French seem to be the most interested in property in South Africa, with the number of French visitors to the site up by 62%. The number of website visits from people in Australia, Canada and the UK is also up by 52%, 32% and 23% respectively.

Visits by Germans have increased by 14% and American visitors have also increased by 10%.
Properties in the bracket of between R3m to R12m get the most hits from international visitors showing that it’s mainly up-market holiday homes that foreigners are after. There is also growing interest in smaller, lock-up-and-go properties in metropolitan areas suggesting that corporate travellers want a little place to call home when they are in the country on business rather than staying in a hotel.

“There has always been significant interest in SA property from Europeans, particularly people from the United Kingdom. Generally, they buy properties here for holiday purposes or as retirement homes.

“Interest is now more widespread, with people from all over the world looking into buying property here. Where it was once primarily luxury holiday homes in coastal regions that were being snapped up by foreigners, we are seeing an increase in the number of smaller properties in the metro areas of Johannesburg and Cape Town being sold to international investors,” says Jason Rohde, CEO of Lew Geffen Sotheby’s International Realty South Africa.

Rohde points out though that while foreign interest in SA property is growing, overseas buyers are more cautious about actually taking the plunge.

“While it is only the wealthy who are able to afford to buy homes overseas, they are not entirely untouched by economic factors so they aren’t as ready to jump into actually buying property as they perhaps were two years ago. The strengthening of the rand means that the foreigners’ purchasing power isn’t quite what it was either.

“As a result, foreign buyers are more price-sensitive and are looking for value for money. As with local investors, they are also weighing up their options more carefully, taking into account other factors such as security. The home has got to meet their criteria, including price, in order for them to make a commitment.

“Generally speaking, there is an oversupply of housing stock across most price categories, so it is essentially a buyers’ market. Sellers must be realistic about the asking price on their properties if they want to ensure a sale. They must present a fair deal,” Rohde advises.

Dr Andrew Golding, CE of the Pam Golding Property (PGP) group, says South Africa remains a sought-after property investment location among high net worth German investors.

“While the Soccer World Cup has focused increasing worldwide attention on South Africa, the fact is that even amid the global economic downturn South Africa has remained prominently on the radar of German property investors as a market to watch. Over the past year, Gaby Moëssner, who represents PGP in Germany, has seen increasing interest among German investors in leisure or holiday homes in South Africa.

“During this period their main areas of interest for such homes include the Eastern Cape with its exceptional value for money, the Garden Route, and the Cape and its popular Winelands region, particularly its scenic golf estates.

"As a rule and understandably, overseas buyers do not make quick decisions regarding property investment in overseas countries, including South Africa. And the Soccer World Cup – being a once-off event – may not necessarily influence their investment decision, although it certainly is considerably raising our country's profile abroad.

"Interestingly we've noted that several PGP clients in Germany have recently sold their properties in Spain and are looking to invest elsewhere. Certainly with our beautiful coastlines, spectacular natural scenery and appealing weather conditions during the harsh European winter months, South Africa can compete with other countries, such as Croatia and Turkey, which are currently of high interest among investors wishing to acquire holiday homes," adds Dr Golding.

Eugene Brink

Overview on South Africa property market

14 April 2010

Where it's at and where it's going.

The South African property market is slowly gaining traction and provided lending institutions loan in a responsible manner and interest rates stay down, the market should grow by a positive, albeit modest, 9% this year.

Despite predictions that the local property market wouldn't start showing signs of recovery until 2010, things started to look up towards the end of last year and the market is already on an upward trend.

We were all prepared for a particularly gloomy 2009 but the market stabilised by September and house prices began rising by the end of the year. We believe that 2009 was nowhere near as bad as had been predicted. In fact, we believe it was actually a relatively good year for the South African property market, particularly in comparison with 2008, which was pretty dismal indeed.
Overall, the volume of property sales rose by 46% and turnover increased by 42%. House prices declined by 5% owing to the first two quarters of the year. Geffen is confident that the housing market will maintain this upward momentum as long as interest rates stay down.

There is still an excess of housing stock, particularly in certain price categories. This is due to repossessions and houses up for sale by owners who found they'd financially over-extended themselves as the recession took hold. Furthermore, stricter lending criteria and the National Credit Act have made it difficult for potential buyers to secure housing loans.

On the whole, there was waning interest in property because people were either too financially-strapped to buy houses or, against the backdrop of what was happening in the global housing market, decided that investing in property was too risky. All of this contributed to a lack of buyers and an over-supply of houses for sale. However, demand is picking up. To give you an example, this year we saw the especially notable sales of a property in Bryanston for R50 million and another in Sandhurst for R35 million. Also, the overall sales volumes being logged by our offices are currently 46% ahead of the volumes recorded at this time last year, and turnover is up a whopping 42%.

A slack in banks' lending criteria would be welcome because it would enable more people to qualify for loans and buy houses.

This would certainly help to stimulate movement and growth in the market. More importantly, it would give more people a chance to own their own home. However, lending institutions must lend responsibly otherwise it could be detrimental.

Geffen's advice to homeowners is to upgrade their properties now while the market is still warming up.