Trophy properties in vogue for foreign investors

Foreign property buyers continue to enter the top-end residential property market in South Africa, with the last six months seeing an uptick in purchases of Gauteng and coastal properties.
“The percentage for the two quarters up until the 1st quarter of 2014 was 19.5%, up from the 16% of the previous quarter (2013, Q4),” notes FNB’s Foreign Buying of South Africa’s Residential Property barometer.
The bank also states that the percentage of foreigners buying local homes hovers around 3%, from the highs of 7% in 2005 (see graph).
Luxury holiday homes top the list for foreign investors, says Anne Porter of commercial & residential property agent Knight Frank.
The build-up to the 2007/8 global economic crisis saw development of top-end properties slowing and a foreign investor exodus from the sector. But the recent high demand for luxury homes is indicative of a property market catching up.
Knight Frank’s 2014 Wealth Report states that wealth in Africa is still largely concentrated in South Africa, specifically in Johannesburg and Cape Town.
This is backed by Lew Geffen, chairman of Sotheby's International Realty in South Africa, who says there is a lot of activity in the luxury property market in both areas at the moment.
Cape Town beckons
Geffen says the main area of interest for investors in Cape Town has been the exclusive Atlantic Seaboard, the coastline between the V&A Waterfront and Hout Bay – known for its beaches and spectacular views. Entry prices in suburbs such as Bantry Bay and Camps Bay can range between R40 million to R150 million.
According to Geffen, foreign purchases of Cape Town’s top-end properties represent just 2-3%, while local investors are the most active coming in at 57%.
Noticeable upsurge
Despite there being a small portion of foreign buyers of top-end property, Ronald Ennik, CEO of Ennik Estates says “as you get to the more expensive level the ratio of foreign investment goes up”.
“There has been an upsurge in foreign demand from two years ago for properties from R9 million and upwards,” says Geffen.
The increase of foreign investors into South Africa’s property market is often attributed to the weak rand. The local currency gives foreign investors the upper hand as they acquire luxury properties at “attractive and cheap” values, he says.
Johannesburg catching up to Cape Town
But the appeal of Cape Town as an ideal investment heaven for foreign home buyers is slowly diminishing.
“Of these (foreigners) buyers, we tend to find a higher percentage buying around Gauteng as compared to the coastal cities,” FNB says.
Jonathan Davies, branch manager of a Johannesburg based Pam Golding says the city still offers investors value for money.
“When we entered the recession we still saw Sandhurst and Hyde Park keep pricing as they were. A lot of property in the market now is priced optimally,” Davies told Moneyweb. The entry level for Johannesburg luxury properties can be between R8 million to R60 million (representing different property classes).
Why SA?
In its barometer, FNB says that rand weakness does little to support local property buying by foreigners. “Rather, it is a strong global economy and high levels of popularity of property as an asset class that are likely to support this source of local property buying.”
Buyers were traditionally from England, Germany and Russia, but industry professionals are now seeing investments from places like Cameroon, Nigeria, Zimbabwe, Angola and Mozambique.
Another factor which sparks interest beyond currency movements for foreign buyers is South Africa’s political stability. The recent election results could also afford foreign investors the confidence of policy certainty, as they look for destinations to safeguard and grow investments.
Most experts agree that sentiment around South Africa is key to sustain foreign investments, especially in the property market.
“Confidence has to do with political stability, how they (foreign investors) see the medium- to long-term picture in terms of the upside investment potential of their assets that they are investing,” says Ennik.