Economics Weekly
The net effect of migration on the domestic residential property market
This report delves into the influence of migration on the domestic home buying market using findings from the FNB Estate Agents Survey. The survey, spanning six major metros in South Africa, compiles data on primary reasons behind property transactions, encompassing both emigration and domestic movements. This unveils "outbound supply". Additionally, we gauge property acquisitions by foreign nationals and South African expatriates, revealing the "inbound demand". By contrasting these dynamics, we gain insights into the directional effect of migration on the market.
Outbound supply: Emigration-linked sales
Emigration-triggered property transactions have markedly decelerated, plummeting from a peak of approximately 18% in 2019 to an average of 9% of overall domestic sales in 2Q23. Since then, semigration, denoting property dispositions by individuals shifting across regions within the country, has emerged as a more prominent trend. These outcomes were shaped by the repercussions of the pandemic (e.g., travel restrictions and Work-From-Home), which generated opposing effects on these patterns - while emigration was tempered, semigration gained impetus. Consequently, emigration-related sales have lost prominence within the domestic market (Figure 1).
Inbound demand: Participaction of foreign nationals and expatriates in the domestic market
Purchases by foreigners have been relatively muted in recent times. In 2Q23, these transactions were stable at approximately 3% of total volumes, notably below the peak of around 6% recorded in 3Q16 and the long-term average of 4.2% since 2Q04. Notwithstanding nuances at an area level, this would suggest that foreigners have broadly not capitalised on advantageous conditions, including a depreciated currency, likely reflecting unfavourable sentiment towards the country (Figure 2).
The last aspect pertaining to "inbound demand" involves purchases by South African expatriates. Here, our survey enquires about the volume of expats procuring homes locally, either for investment purposes or upon their return to the country. Having recently peaked at approximately 3% at the end of 2020, expatriate acquisitions have moderated to 2% by 2Q23. While the significance of expat activity has somewhat recovered from the 2018 lows, when such transactions accounted for just 0.5% of the market, it has remained stable around the long-term average of 2.1% (Figure 3).
Bringing it all together: Net foreign demand
We define net foreign demand as the divergence between inbound demand and outbound supply. A negative value for net foreign demand indicates that migration contributes to an excess supply of homes available for sale, thereby collectively exerting downward pressure on prices. We estimate that South Africa encountered a phase of positive net foreign demand between 2011 and 2014, peaking at roughly 6% in 4Q14. This coincided with a period of robust house price growth, averaging 7.8% in 2014, the highest rate since the global financial crisis. Subsequently, the trajectory of the net foreign effect has trended downward, plunging into negative territory by 2Q17. The most significant negative impact was observed around 4Q19, at around -13%, before the advent of the Covid-19 pandemic. Since then, the negative influence of net foreign demand on the domestic market diminished, receding to -2% in 2Q21 due to slightly increased expatriate activity and decelerated emigration sales.
For 2Q23, our estimates indicate that the net foreign demand stood at approximately -4% of domestic volumes. This underscores the demand deficit generated by migration, necessitating local buyers to bridge the gap to maintain equilibrium between supply and demand. The negative net foreign demand explains, in part, the restrained trajectory of house price growth in South Africa, the other part explained by weak economic and labour market prospects amid tighter financial conditions (Figure 4).
Week in review
SA's gross foreign exchange reserves increased to $62.21 billion in July, from $61.55 billion in June. The increase reflected a higher dollar-denominated gold price as well as valuation adjustments given foreign currency and asset price changes. These were mitigated by government-related foreign exchange payments.
Mining output (not seasonally adjusted) expanded by 1.1% y/y in June after shrinking by 0.7% y/y (previously -0.8% y/y) in May. Seasonally adjusted mining output, which aligns with the official calculation of quarterly GDP growth, also expanded by 1.3% m/m following a monthly contraction of 3.8% in May. Nevertheless, output expanded by 1.5% q/q in 2Q23, reflecting continued momentum from the 1.4% quarterly expansion in 1Q23. This means that the mining sector contributed positively to 2Q23 quarterly GDP growth. Despite the sustained quarterly growth momentum, the mining sector remains challenged by load-shedding and logistics constraints, as well as moderating external demand. Commodity prices have come down relative to last year, weighing on earnings and the mining sector's contribution to government tax revenue collection. Output is down by 1.0% in 1H23 compared to 1H22. This is consistent with our expectation of a continued, albeit moderate, decline of around 2.0% (relative to a 7.1% decline in 2022) in the mining sector's gross value added.
Total manufacturing output (not seasonally adjusted) expanded by 5.5% y/y in June, reflecting an acceleration from 2.4% y/y (revised from 2.5% y/y) growth in May. Seasonally adjusted manufacturing output increased by 1.2% m/m after shrinking by 1.3% m/m in May. Output expanded by 2.3% q/q in 2Q23, advancing from the 1.4% quarterly expansion in 1Q23. The manufacturing sector also contributed positively to 2Q23 quarterly GDP growth and poses upside risk to our -0.1% preliminary quarterly GDP prediction for the second quarter. YTD growth in manufacturing output is flat (0% y/y), an improvement from the 1.2% decline during the corresponding period last year. However, the manufacturing sector is likely to reflect mild weakness over the 2H23, given prevailing load-shedding and logistics challenges, as well as moderating global demand. This is consistent with the latest manufacturing PMI for July, which remained in contractionary terrain (i.e., below the 50-neutral mark) for the sixth successive month.
Week ahead
On Tuesday, the Quarterly Labour Force Statistics (QLFS) for 2Q23 will be published. The QLFS data (not seasonally adjusted) showed that the official unemployment rate remained high at 32.9% in 1Q23, up from 32.7% in 4Q22. Despite the structurally elevated unemployment rate (32.9% now versus 23.2% in 1Q08), the employment recovery has been sustained with 1 910 271 cumulative net employment gains over the past six quarters, although it remains marginally incomplete from the 4Q19 levels. That said, the outlook remains challenged by heightened uncertainty, continued electricity and logistics challenges, and stagnant economic growth.
On Wednesday, data on retail sales for June will be published. Retail sales volumes declined by 1.4% y/y in May, after falling by 1.8% in the previous month. Seasonally adjusted volumes declined by 0.7% m/m, following an increase of 0.2% in April. The weak performance was relatively broad-based, with five out of seven categories recording a decline in annual sales. On a three-months to three-months basis, volumes sales are down by 0.7%, giving early indications that the retail industry could detract from 2Q23 GDP growth. Looking ahead, the unexpected load-shedding reprieve and near R1 fuel price relief in June could provide near-term support, although this must be weighed against higher debt costs.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 7 Aug | SA | Foreign exchange reserves ($ billion) | Jul | 62.2 | 61.6 |
| 10 Aug | SA | Mining production %m/m | Jun | 1.3% | -3.8% |
| SA | Mining production %y/y | Jun | 1.1% | -0.7 | |
| SA | Manufacturing production %m/m | Jun | 1.2% | -1.3% | |
| SA | Manufacturing production %y/y | Jun | 5.5% | 2.4% |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 15 Aug | SA | Unemployment rate | 2Q | -- | 32.9% |
| 16 Aug | SA | Retail sales %m/m | Jun | -- | -0.7% |
| SA | Retail sales %y/y | Jun | -- | -1.4% |
Financial market indicators
| Indicator | Level | 1W | 1M | 1Y |
|---|---|---|---|---|
| All Share | 77,749.68 | 1.3% | 3.8% | 11.5% |
| USD/ZAR | 18.84 | 0.8%% | 2.0% | 16.5% |
| EUR/ZAR | 20.68 | 1.1% | 1.7% | 23.9% |
| GBP/ZAR | 23.90 | 0.6% | 0.0% | 20.4% |
| Platinum US$/oz | 906.59 | -0.8% | -1.9% | -3.7% |
| Gold US$/oz | 1,91.06 | -1.1% | -1.0% | 6.7% |
| Brent US$/oz | 86.40 | 1.5% | 8.8% | -11.3% |
| SA 10 year bond yield | 10.12 | -3.1% | -5.6% | 0.9% |
FNB SA Economic Forecast
| Economic Indicator | 2021 | 2022 | 2023f | 2024f | 2025f |
|---|---|---|---|---|---|
| Real GDP %y/y | 4.7 | 1.9 | 0.2 | 1.0 | 1.8 |
| Household consumption expenditure % y/y | 5.8 | 2.5 | 1.2 | 1.1 | 1.1 |
| Gross fixed capital formation % y/y | 0.6 | 4.8 | 4.2 | 3.1 | 4.2 |
| CPI (average) %y/y | 4.5 | 6.9 | 6.0 | 5.2 | 4.8 |
| CPI (year end) % y/y | 5.9 | 7.2 | 5.3 | 4.8 | 4.8 |
| Repo rate (year end) %p.a. | 3.75 | 7.00 | 8.25 | 7.50 | 7.00 |
| Prime (year end) %p.a. | 7.25 | 10.50 | 11.75 | 11.00 | 10.50 |
| USDZAR (average) | 14.80 | 16.40 | 18.50 | 18.00 | 17.50 |
