Published on 27 February 2006 at 12:57 pm
Filed in Property News for South Africa » New Proposals Damaging Property Market in South Africa
New proposals that will prevent the sale of real estate in South Africa to foreigners are under consideration by the government and they are already having a negative effect on the property market in South Africa according to our local sources.
A blanket ban on the sale of real estate in South Africa to foreigners, to be implemented with immediate effect, was proposed by a special government advisory panel on February the 17th and already property investor interest and foreign direct investment commitment in South Africa has been hit.
The ban on the sale of land and property to overseas buyers was proposed for a number of reasons; firstly property prices in South Africa have risen dramatically over the past five years. In 2004 for example, South Africa experienced the largest boom of 20 worldwide property markets analysed by The Economist when average prices across the country shot up by 35%. This boom in real estate prices has resulted in land and property in many areas of the country becoming completely unaffordable for the local community because house prices have effectively risen faster than consumer income.
Despite the fact that the boom in real estate prices has actually had very little to do with foreign purchasers who only account for around 1% of all property purchases across South Africa – rising to 7% in the most popular parts of the country – the government want to stop foreign buyers from owning freehold title to property in South Africa.
According to expert analysis of the price boom experienced in the South African real estate sector, the price increases can be attributed to a number of factors such as strong economic growth, lower interest rates, low initial starting costs and a nation more confident in real estate as a commodity than equities – and not to an invasion of foreign investors – but whether this will be taken on board by the South African government has yet to be seen.
Another reason for the proposal of a ban on the sale of real estate to foreigners is because the South African government have committed to a land redistribution program with some previously white owned land being redistributed to the black majority. The government under the leadership of President Thabo Mbeki are afraid that their plans for land redistribution are being hampered by the sale of land to overseas buyers and may want the blanket ban enforcing immediately so that they can carefully assess how much land and property in South Africa is already in the hands of overseas owners.
If the proposals as they stand actually come into force they could destroy international confidence in the country and the South African government and be incredibly damaging to the foreign direct investment commitment that South Africa relies upon.
Already confidence in the government has been shaken and as the world waits and hold’s its breath to see what President Thabo Mbeki does next, the numbers of overseas investors committing to South African property right now are down significantly.
