South Africa: Rand Investors' Misfortune is Foreign Investors' Gain
It's a situation that has become unique to the 21st Century in recent years throughout the world's property markets: Foreign investment increasing to the disadvantage of domestic homebuyers.
This situation has intensified in South African property markets in recent years with the sector dramatically undermined by the weakness of the rand, making investment in property an attractive proposition for overseas buyers.
After a prolonged decline South Africa's housing market is showing signs of growth and is now performing well, despite being almost entirely driven by foreign capital. The rand's continued slide has devalued ROI further for South African investors while offering attractive gains to foreign investors.
Although South Africa has shown house price growth of more than 20% annually over the last four years, in dollar terms the value of real estate in South Africa has declined by 23% over the same period due to 64% currency devaluation.
The investment dynamic in South African real estate is very much in favour of buyers from overseas while domestically many investors are looking for an international hedge.
And this is another side of the anomalous shift towards playing currency advantages in international property markets that we've witnessed elsewhere in the world: foreign buying drives growth in domestic markets while domestic buyers look overseas for affordable opportunities in real estate.
UK property markets are the focus of the majority of South African investors seeking the safe haven of sterling. As well as high capital appreciation and strong yields on offer across the UK's private rented and student sectors, returns are sterling-based protecting them against FOREX volatility.
South African Standard Bank caution prospective home buyers in domestic markets to carefully assess affordability when buying property. A deposit of 20% of the property's value is now required together with considerable legal costs and there is a strong possibility of rising interest rates in the country.
However, supply on the affordable side of South African real estate is dwindling as construction favours the high profit margins available at the luxury end. An affordable property is considered to be priced at around half a million rand, equal to ?36,000 and competition is fierce on the few occasions new supply becomes available.