In defence of whose interests?
| I RECENTLY explained, on these pages, why the recommendation
of a moratorium on land purchases by foreigners is completely unjustified
by the available evidence.
One of the arguments used to justify the recommendation was that foreigners were pushing up property prices. The latest Absa house price index (February) shows that overall house prices are still increasing but the rate of increase is slowing. However, the last detailed Absa analysis (fourth quarter last year) showed that prices in the top segment of the market, where foreigners are most active, actually fell 1,9% year on year and other reports indicate that this trend seems to be continuing. While last year the average prices of all properties in Western Cape (popular with foreign buyers) increased nominally 20,9%, the increase was 36,1% in Limpopo, 21,8% in Mpumalanga and 19,1% in Free State.
Since foreigners do not feature as major market forces in the latter three provinces, surely this puts to rest the assertion that it is foreigners pushing up prices and making it difficult for South Africans to buy property?
In respect of the slow pace of delivery of affordable housing for lower-income groups, the Banking Association has reported that, largely as a result of insufficient stands for new houses, delivery of new houses in this sector fell 28% last year. Indeed, the Absa report identifies the main cause of house-price inflation last year as higher land prices caused by a scarcity of suitable and fully serviced land. Certainly, for affordable housing, the real problem is public service delivery, not foreign buyers.
While there seems no evidence to support restrictions on foreigners buying residential property, this does not exclude restrictions in respect of other types of property. Indeed, part of the problem with this whole debate is in not differentiating between different types of land. It is akin to debating placing general restrictions on foreigners buying firms in SA, and including everything from a four-man plumbers business to Telkom.
Golf estates have featured much more in this debate that they deserve. They are an insignificant part of the total market, but cause high emotions. The implication in the interim report that all houses on golf estates are owned by foreigners is factually incorrect. That too many new golf estates are planned, is probably correct on ecological and other grounds. But this has nothing to do with the debate on foreign ownership.
There seem to be no reasons for placing restrictions on foreigners buying commercial or industrial real estate. Even those countries that have some minor restrictions on foreigners buying certain types of real estate, usually exclude such properties. It is difficult to understand the argument used in the interim report of the panel of experts, to the effect that it is disadvantageous that the income from foreign-owned property flows abroad. The net rental income is subject to South African taxes and so contributes to the local economy. Capital gains are also subject to South African taxation. It will take years for the capital introduced to SA when the properties are bought to leave once more in the form of after-tax rents.
That food production can be seen as of strategic importance to the country might be a reason to ensure that large farms stay in local ownership, even though the report itself states that foreign ownership of agricultural land is at present insignificant. However to imply that the slow progress of land transformation is due to foreign purchases is nonsense.
The interim report claims to dispel the myth that government is hoarding land suitable for redistribution, but the proof of this is still outstanding. The land listed in the report does not include the considerable areas owned by parastatals and, apart from this, some observers claim that not all other government-controlled land is registered as such and, therefore, is not included in the summary.
There is some evidence to indicate that one of the main reasons for slow progress in land transformation is simply the inefficiency of the Land Commission. It is rather convenient to imply that foreigners are to blame. If the real cause of slow progress can be shown to be the resistance of white farmers to selling, this could be solved by the appropriation of land at fair market value, if necessary to be determined on appeal by a specialist court, such as the UK Lands Tribunal.
The proposals in the report to ensure more transparency of property ownership are quite sensible and will hopefully result in future debates of this nature being based upon firm evidence instead of pure speculation.
Statements to the effect that there are restrictions on property acquisition by foreigners in most other countries are incorrect. For example, European Union (EU) law prevents such restrictions. Although one or two US federal states have minor restrictions, there is nothing to prevent foreigners buying houses in popular areas, such as Florida, or investing in major commercial properties in any of the major cities. In fact, it is estimated that foreigners own $44bn worth of real estate in the US. Restrictions in other countries have been overstated by some commentators trying to make a case for restrictions
The outcry the interim report has caused will surely lead to a host of new representations to the panel of experts, the collection and analysis of more relevant data, and a serious rethink of most of the preliminary findings, which were almost all based on perceptions and not empirical evidence. It is to be hoped that this be done thoroughly and not in undue haste. If so, it will clearly be impossible for the final report to be issued, as planned, by the end of April.
Many have questioned what motivates government to want to regulate foreign land ownership. Perhaps it is simply a matter of exaggerated patriotism, but as Samuel Johnson once said, patriotism is the last refuge of a scoundrel. This may be unfair to real patriots, but is the criticism being levied at politicians in France and Spain because of their attempts to frustrate foreign acquisitions of utilities companies in these countries in the name of national interests?
The European Commission has come out strongly against these infringements of EU law. The threat by the US congress to block the purchase of some US ports by investors from Dubai, because of their supposed strategic importance for the country, has also come under attack from the international investor community. As the Economist recently wrote, the truth is these governments are not at all defending their nations interests but their own positions and, often, those of their cronies.
Does this strike a note in SA?
Article by: John Morgan - www.businessday.co.za