Foreign buyers in South Africa's Luxury Real Estate Market

Cape Town’s ‘the Castle’, an imitation of Germany’s Lichtenstein Castle, a historic neo-Gothic fortress, houses a banquet hall lined with armour suits and stained windows, 12 bedrooms and a swimming pool. With views over the city's Hout Bay, there is a helipad and natural waterfall, accessible only by a private mountain road or helicopter.

‘The Castle’ is one of the most famous real estate landmarks of Cape Town, formerly a guest house and popular wedding reception venue.

However, it has now closed a deal during 2012, sold to a ‘high-profile’ Russian businessman for $2.2million.

This is just one piece of prime real estate acquired from the Cape Town market by a Russian. It has been claimed by local real estate agents that affluent Russian buyers have also purchased numerous other multi-million-dollar homes along the city's coast over the last several years, moving into the region's blend of sun, mountains and sea.

Russian buyers have been found to be fond of lifestyle properties, as reported by the head of South Africa's Atlantic seaboard, Brendan Miller, at Sotheby's International Realty luxury global real estate agency. High-end seaside and beachfront houses range from 10million to 40million South African rand ($950,000 to $3.8 million), being the highest in demand from Russian clients.

Foreign interest is reaching a peak in South African real estate, in part motivated by a weakened local currency motivating global currencies' buying power.

According to economic data analysis centre, CEIC, the South African rand has been depreciating since the middle of 2011, making residential real estate widely cheaper for foreign currency earners. According to South African lender, First National Bank (FNB), last month saw housing prices of South Africa down 21.7% in terms of the euro and 19.4% in terms of the dollar, in comparison to the end of 2010. As the Russian ruble has also slipped against these currencies, its depreciation has been slower.

The FNB also found property purchases by foreigners have doubled from approximately 2% of total buying during 2010 to 4% during the first half of this year. Cape Town, lined by beaches and wine farms thriving in the region's Mediterranean climate, is especially popular, with an estimated 7.5% of total property sales towards foreigners.

The FNB report directed to global economic recovery from the 2007-2008 financial crisis as the principal drive of the property-buying bump.

Local real estate agents explain South Africa’s popularity is owed to beyond financial reasons. Investors not only receive a property bargain, but a buy into a unique high quality of life.

Managing director for Knight Frank in Cape Town, Lanice Steward, commented of trendy beaches, world class restaurants, first class facilities and space. The hosting of the 2010 FIFA World Cup attracted more than 300,000 international visitors, which in turn developed the city's world exposure over the recent four years.

Miller, of Sotheby's Realty, also highlighted the country's lack of restrictions on foreign buyers, contributing to growth. Foreigners can freely bring their money in as well as take their money out as they wish, part of why South Africa has been regarded as hassle free to foreign investors and accommodating.

Miller believes that the number of international hits on Sotheby's South African websites has leaped by approximately 30% over the recent nine months.

Both Steward and Miller named Britain and Germany as the top two foreign buyers, with Russia informally ranking fifth or sixth place by interest.  

Russians are still newcomers to the South African property scene - Western Europeans have been dominating foreign sales for a while, however it would have been unusual to have a Russian client five years ago. Today, local offices of Sotheby's and Knight Frank work with up to a dozen Russian clients each year.

Russians are great travellers, ranking fourth in the world in annual tourism expenditure. According to the United Nations World Tourism Organisation, Russians spent $53.5billion holidaying abroad last year, up 25% from 2012's $42.8billion.

Affluent Russians also enjoy a remarkably high level of disposable income, significantly higher than the average amongst the member countries of the Organization for Economic Cooperation and Development (OECD), a club comprising some of the world's richest nations.

As reported by OECD Better Life Index, the top 20% of Russian earners make an average $33,860 of disposable income per year, in comparison with the $23,938 annual average of OECD members.

With money to spend and favoured warm-weather beach vacations, Russians are known for contributing greatly to tourist resorts in Egypt, Thailand, Turkey and the United Arab Emirates during Russia's long winter-holiday season.

Political stability in South Africa also remains a crucial condition for sustained foreign investment within the local economy, alongside continued global economic recovery.