Greenleaf Property Developers

Players in South Africa's property industry are expressing unease around proposals originating from the report on foreign land ownership as well as recent legislation that stipulates that anyone buying property from a foreigner has to withhold tax from the proceeds of that sale.

The general consensus is that care needs to be taken when formulating policies and laws around foreign ownership of land and property in South Africa in the interests of maximum benefit to South Africa's growing economy.

The government-commissioned report on foreign land ownership recently presented to Agriculture and Land Minister Lulama Xingwana proposes the compulsory disclosure of the race, gender and nationality of all foreign and South African buyers along the lines of the Financial Intelligence Centre Act. It specifies that this disclosure should encompass all past, present and future registrations of property titles.

This follows statements by Xingwana in June 2007 that her department was considering drafting laws to limit foreign ownership of land in South Africa due mainly to increasing property prices in certain areas.

The report, which is to be issued for public discussion and comment following an analysis of international policies and global trends, states that this regulation is for disclosure and statistical information and not for unfair discrimination.

Erwin Rode of Rode & Associates disagrees with the reason given. "It's really just about bringing in racial discrimination through the back door, like what we had in the apartheid era," he says.

Rode's views are in line with many opposition parties, which have rejected the report as over officious and racially prejudiced.

The report further advises a limited two-year moratorium on the sale of state land to foreigners to avoid the disposal of state land, including municipal land that might be used for land reform and human settlements for dispossessed and marginalised people.

This report coincides with recent provisions to the law in terms of which persons who purchase properties from foreigners are obliged to withhold 5% of the price above R1m for payment, by the conveyancing attorneys, to the Revenue Services (SARS) in lieu of capital gains tax.

South African Property Owners Association (SAPOA) CEO Neil Gopal responded to the report by pointing out that the two key things that ought to be considered include the economic effect of the report on the one hand and the effect on foreign investor confidence on the other, with the overriding view that the economic effect of foreign land ownership policies may be less significant than the effect on investor confidence.

Property economist Francois Viruly of Viruly Consulting points out that foreign ownership of land in South Africa is negligible. He is of the opinion that foreign ownership should not be targeted as a means to achieve broader policy objectives and that government should avoid singling out specific types of properties and groups of investors when developing land usage-related policies.

He advises that the focus should lie in the development of an appropriate land-use management policy that is equally applicable to foreign and South African investors.

He further envisages that such a land policy should balance the creation of an enabling property market investment environment with South Africa's social economic objectives.

"We certainly don't want to start discouraging foreigners from investing in South Africa, either in commercial or the residential sectors," he says.

Rode feels that regulating the foreign ownership of land "only has a downside with no upside".

"We must beware of branding South Africa as a country that doesn't welcome foreign investors," he says.

"Foreign investment is not going to make any difference to the price structure of property in this country because foreigners are not price makers. So they cannot be held responsible for increasing property prices in some areas as Xingwana believes to be the case.

"Wealth is the culprit. If government wants to reduce price it must reduce wealth. This is effectively a worldwide phenomenon, i.e. that globally prices are driven by wealth and low interest rates."

According to Barak Geffen, executive director of Sotheby's International Realty, the issue of foreign ownership of property usually generates heated emotions. "However, if the country is to attract sorely-needed professional skills, property investment should not be made so onerous as to discourage overseas buyers," he says.

"And I'm referring to the law that states that anyone buying property from a non-South African resident should be aware that they must withhold tax from the proceeds of that sale.

"The impact of the new legislative provisions on the real estate industry is negligible as foreign ownership of property in South Africa counts for less than 1% of total property ownership.

"So if we are to emulate the economic success of a country like Australia, for example, we need to ensure that investment in property is an attractive option for highly-skilled people. Assuming some relaxation of the laws applicable to work permits, non-residents who bring their skills to the country should be easily able to invest in property," he concludes.

There are currently no restrictions on foreigners buying property in South Africa, and the acquisition of commercial property by foreigners is exceeding that of residential property.

According to the Residential Property Price Ranger (RPPR), Europeans comprised 15% of the buyers of houses in the Cape winelands around the beginning of 2007. It also says foreigners are becoming more and more interested in South African property and land - even in areas such as the Eastern Cape, KwaZulu-Natal and Gauteng. - Kara Michaels