Expats not snapping up property no more

Weakened sentiment towards South Africa appears to be increasingly reflected in the level of foreign citizens’ buying as well as that of South African Expats, both of which appear to be “drifting” gradually weaker. The FNB analyst takes a look at the latest Property Barometer

The third Quarter 2017 FNB Estate Agent Survey showed further hints of a slowdown in foreigner buying of South Africa property.

In the survey, we ask the sample of agents surveyed (predominantly in the six major metros of the country) to estimate the number of foreign citizens buying homes domestically as a percentage of total home buying. The third quarter 2017 estimate was significantly lower than the 2nd quarter estimate, dropping from 4.92% in the previous quarter to 3.31%.

We don’t place too much significance on such a quarterly move because quarter to quarter estimates can be a bit volatile.

However, on a less volatile 4-quarter moving average basis, we have also seen some decline in the estimated percentage of foreign buyers, from 5.28% for the 4 quarters up to and including the 3rd quarter of 2016 (the highest fourth-quarter average since the 3rd quarter of 2009), to a lower 4.92% for the four quarters up to the third quarter of 2017.

We have a follow-up question in the survey which also hints at slowing foreigner buying. In this question, the survey respondents are asked whether they perceive an increase, decrease or unchanged level in foreign buyer numbers compared to 12 months ago.

The responses were biased very slightly in favour of “less foreigner buying” in the 3rd quarter survey. 84% reported “unchanged levels” (“unchanged” is normally by far the largest response). 3% of agents reported a “lot less” foreign buyers and 5% reported a “little less”. That totalled 8% of respondents indicating less foreign buyers from a year ago. By comparison, 6% of respondents reported “a little more” foreign home buyers and 2% “a lot more”. This means 8% perceiving more foreign buyers too, but it was 3% saying “a lot less vs 2% saying a “lot more”, keeping the bias very slightly in favour of “less foreign buyers), as has been the case in 4 of the past 6 quarters.

We aggregate the agent answers into what we call our Foreign-Home Buying Confidence Index, depicted on a scale of +2 to -2. A level of +2 means that 100% of agents state a “lot more foreigner buying”, -2 reflecting 100% stating a “lot less”, and with a zero level indicating that on average the agents are saying that levels are unchanged from 12 months ago.

The index was at its strongest positive level of +0.17 as at the final quarter of 2014, having climbed to that level starting around 2012 and reflecting prior years’ improvement. However, since 2015 this indicator’s level has fallen, and in 4 of the last 6 quarters, it has been in negative territory. The 3rd quarter 2017 level was only slightly negative, to the tune of -0.01, following on a -0.12 level in the preceding quarter.

Expatriate buying of South African property on a declining trend

A second set of foreign-related buying questions that we pose to the sample of agents relates to the levels of buying of domestic residential property by South African expats living abroad.

Here, too, we have seen a decline, although this broad declining trend seems to have been gradual and over a longer duration, having started back in 2015.

In the final quarter of 2014, the estimated level of Expat buying was 2.93% of total home buying, with the 4-quarter moving average up to that quarter being 2.42% of total buying.

This percentage has gradually slowed to where both the quarterly estimate and the 4-quarter moving average measured 1.42% in the 3rd quarter of 2017.

We have a follow-up question in the survey, similar to the follow-up question in the case of foreign buyers. In this question, the survey respondents are asked whether they perceive an increase, decrease or unchanged level in foreign buyer numbers compared to 12 months ago.

The responses in the past six out of seven quarters have been biased in favour of “less expat buying”. In the third quarter survey, 92% reported “unchanged levels” (“unchanged” is normally by far the largest response). 1% of agents reported a “lot less” expat buyers and 4% reported a “little less”. That totalled 5% of respondents indicating less expat buyers from a year ago. By comparison, 2% of respondents reported “a little more” expat home buyers and 1% “a lot more”. This means 3% perceiving more expat buyers vs 5% saying “less”.

This bias in favour of “less expat buyers” is small, and diminished from the previous quarter. However, the bias in favour of “less expat buyers” has been in place for the past 6 out of 7 quarters, which becomes significant.

We aggregate the agent answers into what we call our Expat Home Buying Confidence Index, depicted on a scale of +2 to -2. A level of +2 means that 100% of agents state a “lot more expat buying”, -2 reflecting 100% stating a “lot less”, and with a zero level indicating that on average the agents are saying that levels are unchanged from 12 months ago.

The Index level for the 3rd quarter was a slightly negative -0.02, a little less negative than the -0.06 of the prior quarter, but nevertheless sustaining the bias in favour of “less expat buyers”, a noticeable turnaround from the sustained positive period from late-2010 to end-2014.

In short, both foreigner buying of domestic residential property, as well as South African expat buying of local property, are perceived to have moved gradually weaker, the former since late-2016 and the latter since back in 2015.

We believe this weakening to be reflective of a dampened investor sentiment towards South Africa in general, which in turn is the result of the country’s multi-year economic stagnation, uncertainty regarding future economic policy, and widely publicized negative news such as the recent sovereign rating downgrades to “junk status”, with further rating downgrades mooted as a possibility.

 

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