Mixed bag of messages sent to foreign investors

THE weakening rand could boost the luxury end of the residential property market as it makes it cheaper for foreigners, armed with a stronger currency, to buy property in SA.

But real estate commentators also say political uncertainty and SA’s power supply problems, which are making headlines around the world, could be a deterrent to foreign investment in property.

Rael Levitt, CEO of auction house the Alliance Group, is confident the weaker rand will give the luxury property market, where properties are valued at R10m and more, a boost.

Levitt says that at the end of 2000, when SA was coming out of a recessionary environment, the weak rand — which at the time was trading at close to R13 to the dollar made local property so cheap for foreigners that they “came here in droves”.

He says many people believe this was the “kick-start to the luxury residential property boom which we have experienced ever since”.

While the rand is much stronger today, it has weakened of late to above R7 to the dollar, which could entice foreigners as luxury property is relatively more affordable for them.

While the effect of the weaker rand takes a while to filter through, Levitt says, the auction group has noticed at auctions that “foreign bidders have been bidding more aggressively armed with a stronger currency”.

“If the rand continues to weaken or it stabilises, the positive effects for the top end of the market will still filter through.”

But Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, says markets are driven by sentiment as well as interest rates.

“Higher interest rates have put a pall on the market at the moment. Although there is merit to the argument that the weaker rand would ordinarily drive foreigners to our market, I think that the present infrastructure problems, such as electricity supply, are a deterrent.” He says it is “too early to call what will happen”.

If the rand deteriorates radically, short-term money would come into the country, but not necessarily for property investment.

Geffen thinks it is going to be a “very tough year in the residential property market” in all price segments.

Herschel Jawitz, CE of Jawitz Properties, says he believes a lot of the buying of luxury coastal property by foreigners has been as a result of the “fantastic value” they get for property relative to what they can buy in similar coastal resorts in Europe.

“Once again a weakening rand should continue to offer these kinds of opportunities.”

But Jawitz says there is a need to be a little more cautious this time because other than a weakening exchange rate, the “news emanating from SA at the moment is less than positive”.

“This includes issues around the power supply, and the usual crime and the political noise being experienced,” he says.

News of SA’s blackouts is being reported as far afield as the Los Angeles Times and is potentially damaging.

The Los Angeles Times quoted electrical engineering professor Trevor Gaunt on Monday as saying it might take 20 years to recover from the damage to the country’s image caused by the power supply crisis.

Artcile by: Nick Wilson - www.businessday.co.za