News from the government - the government will regulate the conditions under which foreigners buy local land

Regulating foreign ownership of real estate is “silly romanticism” that could alienate the much-needed investment into South Africa and impair economic growth, warned Leon Louw, of the Free Market Foundation.

Louw was reacting to Thabo Mbeki’s announcement in his State of the Nation speech last Friday that in 2006 the government will regulate the conditions under which foreigners buy local land.

“This will be done in line with international norms and practices,” said Mbeki.

Louw charges controls on foreign land ownership will yield no benefits for the country because there is no correlation between land and economic prosperity. “Economic growth in prosperous countries was not achieved through curbing foreign ownership of land.”

Tony Twine, economist at Econometrix, also charges that it is disconcerting when the government starts talking about regulating foreign ownership of anything because this may lead to a collapse of a market that was attracting inflows of foreign capital.

He pointed out that the driving up of property prices may not be good for buyers but is certainly to the advantage of sellers.

According to the FNB Residential Property Barometer, about 6% of property buyers are foreign, 10% of whom have chosen the Garden Route.

Neil Gopal, CEO of the South African Property Owners Association, welcomed Mbeki’s statement, pointing out that it will increase certainty around the issue and also open up debate.

He added that there was a lot of uncertainty among international investors but welcomed government’s efforts to reach a conclusion on the matter.

Kraai van Niekerk, DA’s spokesperson on land, says the government is looking for a problem in the wrong area and “runs the risk of interfering with free markets”.

The issue of foreign ownership of land is not new. Two years ago the government established a panel to investigate how foreign land ownership affects reform and property prices in South Africa.

But some critics charged that foreign investment, be it in equities or property, does put upward pressure on the prices of those assets.

They also charge that it creates doubt in the minds of foreign investors about government’s intentions. A case in point was the 2001 Rand Commission, which might have sent a signal that maybe the government wants to intervene in the foreign exchange market.

Article by: Chris Nthite - www.moneyweb.co.za