Tony Clarke, the new MD at Rawson Properties, has added his voice to many others in the SA property sector who believe that ownership of property should continue to be open to all foreigners and especially those investing in other spheres of the economy.
'For obvious reasons,' said Clarke, 'this has become a highly emotive issue but the reasons advanced so far for banning or limiting foreign property ownership are largely invalid'
The argument that foreign buyers push up the average prices of SA residential land, said Clarke, remains totally unproven and he doubts if it is true.
'Consider the facts,' he said, 'firstly, foreigners have in the last six years been responsible for less than 1% of the value of SA residential purchases '“ how can so small a figure affect the overall price? Secondly, foreigners buy mainly at the top end of the market so have little or no effect on middle and lower bracket prices. Thirdly, our experience has been that these foreign buyers negotiate as hard, if not harder, than locals and refuse to overpay. Fourth, foreign buying has slowed down after the record figures recorded during the 2004/2005 summer season. This is probably due to a stronger rand and South Africas property price growth that took place over that period'
Clarkes statements were supported by the Rawson research team which said that the average price of homes sold to non-South Africans in 2005 was R2 million. In 2006 it was R2,5 million and in 2007, so far, it has been R2,7 million, i.e. all very definitely in the top bracket.
Clarke said that in courting foreign capital investment SA businessmen have always been able to play the free enterprise card strongly, to sell South Africa on the basis that it is a society which respects the freedom of the individual and allows businesses the opportunities to grow.
'To restrict foreign ownership would send out the wrong message to the very people we want to attract,' said Clarke. 'Foreign property transactions also boost the economy during the buying and selling process, as various taxes become payable, i.e. Capital Gains Tax and Transfer Duty.
The boom in property prices, he added, was due to factors already widely publicised by, for example, the latest Absa Residential Property Market Review: the growth of the middle class, fairly low interest rates and a drastic shortage of land zoned for new development, coupled to rising construction costs.
'If the state wants lower house prices,' he says, 'they must widen the urban fringe and zone far more land for residential use. The shortage of suitable land is a large contributor to raising property prices'
Clarke added that the National Credit Act is already slowing down house sales and this is likely to continue '“ but, he added, house prices, particularly in the middle and upper brackets, continue to appreciate very satisfactorily.
This approach echoes the sentiments voiced in a report compiled by the Group Economics department of Standard Bank on the foreign ownership issue last year .
'The report,' says Clarke, 'makes it clear not only that most countries in the world are not averse to foreign ownership but also that if moratoriums are imposed they are likely to deter foreign direct investment and the influx of skilled workers '“ these we need badly '“ and could also impact negatively on tourism because foreigners with local property come here far more frequently than those without it.
'Obviously,' added Clarke, 'special rules could apply to areas subject to land reform, agricultural property and environmentally sensitive areas'
Clearly most countries have regulations in place to guide foreign ownership, but few place an outright moratorium on foreigners wanting to buy property in their country.
'The report shows that Australia, for example, allows foreigners to buy up to 50% of any multi-unit project and will allow sales of vacant land provided that construction begins within a year. Foreigners can buy commercial property up to about R200 million in value and are welcome to purchase established property provided that an additional 50% is spent over and above the purchase price on improvements or extensions. They are particularly encouraged to form partnerships with Australian nationals.
'In France, there are no restrictions on foreign ownership but, in what is still a semi-socialist country, there are still some stringent tax laws, e.g. if the property is company owned a 3% tax on its total value is levied annually.
'In the US a similar easy-going system prevails except where there could be a security risk and certain states in the US limit the amount of land a foreigner can buy. Our colleagues at the National Association of Realtors in the US confirmed this.
'In Singapore, which has a drastic property shortage, foreigners can still buy property provided they will live and work there.
'In Chile, there are no restrictions except as regards foreigners buying close to national borders.
'Indonesia allows foreigners who are contributing to the GDP (i.e. not just holidaying) to own property or to enter into renewable 65 year lease agreements'
Seven reasons are given why a country might consider restrictions on foreign ownership. These, he said, include protecting the local lifestyle, preventing foreign economic domination, controlling immigration, conserving local food supplies, enhancing national security, preventing foreign speculation and controlling direct foreign speculation.
'At this stage,' says Clarke, 'the whole matter therefore boils down to whether we really want to be an investment-friendly country or not. We cannot on the one hand say, 'Yes, we welcome your money for this factory, plant or business' and on the other hand say 'but SA is for South Africans so you will be subject to draconian residential rulings not dissimilar from those imposed on migrant labour in the hey-day of apartheid''
Pointing to Ireland, Clarke said that few countries had proved more successful in attracting FDI, but he said this had been accompanied by large-scale foreign property buying.
'People moved their investments and businesses to Ireland because it offered cheaper labour, greater tax concessions and a better, less congested lifestyle '“ and for five years they had phenomenal growth. Could not the same occur in SA '“ without destroying the local cultures?'
