Government plans to prevent foreigners from buying land in future

Foreigners will not be in future be allowed to buy land  and limiting locals from owning more than 12 000 hectares

Preventing foreign nationals from buying land in future and forcing them to lease land as in Australia, Thailand, Kenya, Ghana and in some South American countries will hurt especially the lifestyle property market in the Western Cape and in Gauteng.

Although only about 3% of all property is foreign owned and the volume of sales rather small as a percentage of total property sales, Lightstone data still point to total 2014 sales of R9,7 billion sold to foreigners and R11,3 billion sold by foreigners – i.e. R21 billion of property sales.

The effect of president’s Zuma “bombshell” during the State of the Nation address could be the start of a much bigger negative net sales effect during 2015 – as foreigners already has been selling R1,6 billion more in property during 2014 than they were buying. It remains to be seen what the effect on the Western Cape swallows will be – i.e. on those foreigners who are residing during the Cape summer on our shores. Most foreigners buying second homes in South Africa have in the past been drawn from the UK and European countries like Germany, the Netherlands, and Russia, as well as other countries in Africa, such as Nigeria, Ghana and Kenya.

According to Propstats, foreigners bought 456 (R2,1 billion) out of a total of 10 321 (R18 billion) properties that sold across the entire Cape region – with just over 10% of all sales on the Atlantic Seaboard and City Bowl being to foreigners. The average price paid by foreigners in the Cape was therefore about R4,6 million – vis-à-vis the average price of R1,744 million – clearly confirming their buying preferences as being in the upper end of the residential property market.

Government’s move to restrict land ownership by foreign nationals is also set to impact the economy, as South Africa’s regulatory environment is already viewed as hostile towards foreign investors.Foreign nationals will be restricted to leaseholds of 30 to 50 years.

In a statement released by the Presidency on Saturday, foreign nationals are defined as “non-citizens as well as juristic persons whose dominant share holder or controller is a foreign controlled enterprise, entity or interest”. Hence not all immigrants to South Africa will be excluded from land ownership.

In a recent survey by Johannesburg-based New World Wealth, Cape Town ranked 17th of among the world’s top second home buying destinations for global multi-millionaires – a position it now stand to lose.

According to the survey, about 2100 foreign multi-millionaires out of a total 495,000 around the world already own a second home in Cape Town. And perhaps it’s no wonder, since the city offers outstanding value for money, especially for those spending Euros, pounds or dollars. For US$1m, for example, investors can buy about 215sqm of luxury real estate, compared to 15sqm in Monaco, currently the most expensive luxury property location in the word. In London, US$1m will buy 25sqm, in New York it will pay for 40sqm and in Geneva and Tokyo, 35sqm and 76sqm respectively.

Limitation of 12 000 hectares land ownership by South Africans

President Zuma also announced that the government will now look to put a ceiling on land ownership for locals too.

The Regulation of Land Holdings Bill will put a maximum 12 000 hectare ceiling on ownerships by locals. “If any single individual owns above that limit, the government would buy the excess land and redistribute it,” the Presidency says.

However the Presidency adds: “It is recognised that this cannot apply retrospectively without constitutional infringements and as such those who have already acquired freehold would not have their tenure changed by the passing of the proposed law.”

The Bill will be sent to Cabinet for approval, then undergo a public consultation process before being constitutionality tested in Parliament and then sent to the President for assent.

It is said that the Bill contradicts section 25 in the Bill of Rights which mentions the right to property. “No law may permit arbitrary deprivation of property,” says Chief executive of the South African Property Owners Association Neil Gopal.

Head of special research at the South African Institute of Race Relations Anthea Jeffery explains that the country’s Constitution protects the property rights of all citizens.

“Among these are the many black Africans who have bought some 2 million hectares of farm land since 1991 or the 7.6 million black Africans who now own their own homes,” Jeffery says. 

Once the Bill has been passed and is operational, a process will be established for the compulsory disclosure of land holdings by foreign nationals. “These disclosures will be in terms of race, nationality, gender, extent of land owned and its use. The process will be managed through a Land Commission,” states the Presidency.

Government’s hardened stance on property rights for foreign nationals is not new, but the latest talks sheds light on a topic often branded as “political talk”.

Investment risk

There have been widespread concerns over the lack of policy certainty from government, which adds further jitters to the investment community.

The latest move by government is seen as broad attack towards investors.  Efficient Group director and chief economist Dawie Roodt supports this view, adding that many European investors are concerned about property rights in South Africa.

“Private property rights are just the beginning of something much more important. What we are seeing is not an attack on property rights, but an attack on individual rights,” he says.

“Every time this issue rears its head, it further serves to erode confidence in the country as an investment destination – mainly as a consequence of issues of uncertainty,” says Pam Golding Property Group chief executive Dr Andrew Golding.

“Potential investors who may be weighing up South Africa versus a number of other destinations will potentially simply choose to invest elsewhere.”

Impact on commercial sector

Gopal says foreign investment also benefits the commercial property industry. The industry falls prey to negative knock-on-effects with the bill.

“I do not believe that the Deeds Registry is in any position to provide reliable or accurate information on the actual extent of foreign land ownership in South Africa. Until we know this, one cannot implement policy changes,” says Gopal.

Government has other legislations which impact property rights, including the amendments to Expropriation Bill of 1975 and the introduction of the Property Valuation Bill of 2014. 

 

Source – Moneyweb / Ray Mahlaka