Urgent Golden Visa Policy Introduction Necessary For Foreign Buyers Of Western Cape Property

CCH attended 2 of the biggest property expos for second home buyers in Europe during the last 4 months in respectively Manchester and London. South Africa and more specifically Western Cape property has to date not been featured on these expos – as long-haul destinations (more than 3 or 4 hour’s flight) in general cannot compete with sunny Mediterranean countries. The positive reaction of potential buyers to the Western Cape properties we exhibited and the extremely low cost of living in a foreign currency our lifestyle demands, confirmed that the Western Cape’s swallow market is still fairly underdeveloped and in need of governmental support re especially our visa policy.

The volatility of the South African Rand has brought about a two-way property buying traffic across our borders.  The outflowing stream is generated by HNWI South Africans who are diversifying their investment portfolio to so-called safe haven markets with more stable political and economic landscapes, as well as getting exposure to stronger and less volatile currencies. The volume of this “stream” is not public knowledge.

The effect on the local property market is however much less visible in the Western Cape than in the rest of the country which has in addition also been subjected to a semi-gration of buyers towards the Cape. The absence of a big surge in foreign buyers is however worrying - despite the extremely low international prices of our property and the results of new Cost of Living Survey by mobility firm Mercer which ranks Cape Town now as the second among the least expensive cities in the world (behind Windhoek in Namibia).

The absence of a golden visa linked to a much more lenient residency policy for property owners has become a major stumbling block for the South African property market’s capability to attract swallows (foreigners visiting our shores during the northern hemisphere’s winter) who not only are repeat visitors, but become visitors with a vested interest in the country’s welfare and the local economy they have bought into. The potential spending income and jobs generated in the areas where swallow investments could be incentivized, calls for some serious “investigation” by all interested parties (i.a. Departments of Home Affairs, Trade & Industry (DTI) and Chamber of Commerce as well as the relevant provincial and local governments).

The most worrisome aspect of the property traffic flow is the perceived lack of strategy on the part of national government to incentivize and enlarge the much needed permanent swallow buyers residential ownership base of the more sought–after lifestyle areas of South Africa. The highly emotional debate and change in government policy regarding agricultural land ownership has on the contrary tainted the South African property market as a traditional safe haven for foreign buyers despite numerous confirmations by government that that the redress of land ownership is only meant to influence the agricultural land. The internationally respected South African property market prides itself as being amongst the top regulated property markets in the world – in terms of property ownership and the well-developed deeds registry system.

The lack of a competitive visa policy for financially independent swallows can definitely act as a partial counter-balance for the capital outflow generated by South African HNWI who have during the last few years, due to a much less stringent currency control regime, jumped at the opportunity to purchase offshore property as a means to diversify their investment portfolio into so-called safe haven markets with more stable political and economic landscapes. They have also been increasing their exposure to stronger and less volatile currencies, as well as potentially creating the option for relocation in the future.

The South African rand will most probably continue to lose ground, reflecting the malaise impacting emerging market currencies. If this is the case, offshore investments that generate income in Sterling, Euros, Australian or US Dollars will be attractive to South Africans HNWI – which will include offshore property investments. Foreigners buying property in South Africa are however viewing their second home purchases in a somewhat different light – placing much more emphasis on not only our greener and less costly lifestyle grass this side of the long-haul fence, but seeing our totally undervalued property for what it is…...the property bargain of properly this century!

South African property prices compares very favourable with the average house price of 2 867 UK Pounds (R60 207 per sq.m) in all the European Union capital cities. The average property price across all EU member states is at present 1 967 UK Pounds (R41 307) per sq.m. The average price per sq.m. in the United Kingdom is at present 3 279 UK Pounds (R68 859).

Pricewise Cape Town property (excluding Atlantic Seaboard, City Bowl and Constantia area) slots into the bracket of the lowest priced European Union city, Sofia (Bulgaria) which is at present priced at 734 UK Pounds (R15 414) per sq.m. The average Bulgarian property price is 634 UK Pounds per sq.m. (R13 314).

The price differences between the Cape Town and London property markets has of late become quite dramatic (given the fact that London now is the most expensive property market in the world):

• Every fifth property in London cost more than R20 million – whilst there are in Cape Town about 880 homes worth more than R20 million and in South Africa 2300 in total (Johannesburg has 550 homes worth more than R20);
• Average London property cost 550 000 UK Pounds (+- R11,5 million) at an average of 12 468 UK Pounds per sq.m (R261 828 per sq.m);

South Africa’s biggest competitors in terms of second home buyer destinations (read sunny Mediterranean) for European buyers (excluding Russian, Asian, African and American buyers) are at present Spain, France, Portugal, Italy, Greece, Cyprus and Malta.

To put these countries into a comparative Western Cape property perspective, we have taken a sample of our “sunny” lifestyle properties (all close to the beach or historical centre of town) from across the Western Cape to see how competitively priced we really have become. We specifically excluded the Cape Town Atlantic Seaboard, City Bowl and Constantia area from the first sample – to give a more representative perspective on the “real” Western Cape property market where swallows have already been buying into due to the areas’ quality of life offerings.

Strand (Helderberg) Beach Road 3bed apartment – R16 666 per sq.m (R2,65 million / sq.m.)

Strand (Helderberg) Greenways Golf Estate 3bed house – R11 724 per sq.m (R3,4 million / sq.m.)

Kleinmond (Whale Coast) 5bed house – R6 403 per sq.m (R1,62 million / 253 sq.m)

Kleinmond (Whale Coast) 4bed house – R9 856 per sq.m (R4,8 million / 487 sq.m.)

Stellenbosch (Cape Winelands) 3 bed townhouse – R26 975 per sq.m. (R5,395 million / 200 sq.m.)

Stellenbosch (Cape Winelands) 2bed duplex - R19 342 per sq.m. (R1,47 million / 76 sq.m)

Langebaan (West Coast) Calypso Beach 4 bed house – R14 200 per sq.m. (R4,26 million / 300 sq.m.)

Langebaan (West Coast) – R6 134 per sq.m. (R2,699 million / 440 sq.m.)

Gordons Bay Harbour Island Marine Developm 3 bed house – R10 869 per sq.m (R2,5 million / 230 s.m.)

Gordons Bay (Helderberg) 4 bed house – R12 482 per sq.m. (R3,495 million / 280 sq.m.)

If we use the 10 properties above in the Western Cape in an comparative analysis with its European and Mediterranean counterparts, the following broad assumptions, which logically is not scientifically exact, can be made:

The average price per square meter of the 10 Western Cape properties suitable for swallows and located in popular second or holiday home towns (outside of the Atlantic Seaboard, Constantia & CBD area of Cape Town), is about R13 465 (641 UK Pounds per sq.m.) – on par with the lowest priced country in the EU, Bulgaria at 634 UK Pounds per sq.m.

The “swallows” can therefore buy Western Cape property vis-à-vis the more well-known and popular Mediterranean destinations for:

• 171 % less than the Spanish average price of 1 737 UK Pounds / R36 477 per sq.m. (Madrid 2 601 UK Pounds or R54 621 per sq.m)
• 434 % less than France = 3 423 UK Pounds / R71 883 per sq.m (Paris 6 010 UK Pound or R126 210 per sq.m.)
• 72% less than Portugal = 1 105 UK Pounds / R23 205 per sq.m. (Lisbon 1 725 UK Pounds or R36 225 per sq.m.)
• 330% less than Italy = 2 757 UK Pounds / R57 987 per sq.m. (Rome 5 201 UK Pounds or R109 221 per sq.m.)
• 51% less than Greece = 968 UK Pounds / R20 328 per sq.m. (Athens 1 140 UK Pounds or R23 940 er sq.m.)
• 68% less than Cyprus = 1 076 UK Pounds / R22 596 per sq.m.
• 148% less than Malta = 1 588 UK Pounds / R33 348 per sq.m.

The % saving becomes even bigger when one compares it to the average Western Cape property price of R1,353 million (against the average of R3,22 million we used above as a more “typical second home example property”). The provincial average property prices will equate much closer to an average of about R6 500 (310 UK Pounds per sq.m.) which is in fact half the lowest average prices in the EU – i.e. of Bulgarian prices which is 634 UK Pounds per sq.m. (R13 314) and 222% less than the average property prices per sq.m. in Spain.

South Africa and more specifically the Western Cape need to become much more competitive in terms of attracting foreign property buyers. By creating a minimum property investment price (as e.g. is the case in Portugal for buyers of property to the minimum value of 250 000 Euros) as the criteria for providing a golden visa, South Africa will not only stop penalizing our existing swallows, but will in fact incentivize them.

In Portugal the Golden Visa is a unique residency-by-investment solution where, through an investment in Portugal, you can obtain EU residency. This may also lead to citizenship as long as all requirements are met.

The present hurdles that have been placed by the SA Government in front of the swallows have created a form of disinvestment – as it is now more logical for them to not only rather rent than to buy property, but to also leave our shores after shorter periods (thereby spending much less into the local economies than in the past). The government’s push to ensure financial independency without linking it up with a property investment linked golden visa scheme is forcing the swallows to leave South Africa on a tourist visa within 90 days. For retired swallows who wants temporary or permanent residency status, the hurdles is even higher as they have to provide proof of not only a net worth of R12 million and a monthly income of at least R37 000  (or R1,776 million in a bank account) – but also requiring a deposit of R120 000 payable to the Department of Home Affairs.

These are counter-productive measures as it comes without Golden Visa incentives and is harming the Western Cape economy and therefor the country as a whole. Implementing a Golden Visa system which makes it less cumbersome for swallows to remain for longer periods in South Africa is of strategic importance to our economy. It should form part of the bigger picture of developing the best possible tourism driven economies for especially those more scenic regions who can create and maintain a constant growth in tourism.