Looking further for vehicles
Michelle Swart finds out more about why South Africans are investing in UK property for their eventual retirement
MANY of the earlier Baby Boomers, who are classified as those born between 1946 and 1964, are reaching retirement age, and so will start to downscale their properties to ones more suitable for retirement as opposed to family living. While it is said that the Baby Boomers are set to underpin property recovery, either by purchasing retirement properties or assisting their children and grandchildren in purchasing property, the younger set of Baby Boomers will be looking towards adding to their retirement portfolio.
Anthony Doyle, a Londonbased, South African investor and co-founder of Propwealth, a company which facilitates investments for offshore buy-to-let investors, says that many South Africans are purchasing UK property as an investment for their retirement. “But,” he says, “It is wise to have a clear strategy when investing offshore. You have to make sure to reduce risk by following a simple formula.”
The most important aspect when it comes to residential investments in the UK is the supply of tenants, followed by the right price for the property. Financing is next as the investment returns will largely depend on what sort of interest rate you get.
“Many investors get suckered into buying brand new off-plan units,” says Doyle. “These investments tend to flood the market on completion and drive rents down. Furthermore, the investors have no idea of the hidden costs that can be incurred. Lastly the banks take a very conservative view of values of new builds and very often mortgage less than is expected. The investor then needs to find bigger deposits or lose money.”
Investors are warned to do their sums carefully, including costs such as maintenance, levies, or service fees and should always allow at least two to three weeks a year for a period of no tenants.
“It’s all about being conservative in your approach and maximising your returns when you buy,” says Doyle. “As investors ourselves we do a careful due diligence on all aspects to make sure the investments are cash generating for long term returns.”
A good example of a viable investment is this two-year-old development, pictured right, with existing tenants in central Manchester, sourced from the mortgage holder — a national UK bank.
What makes these units strong investments? Doyle explains: “There are 12, two-year-old units of two bedroom flats with 65m² of living space, close to the canals and vibrant cafes and bars of this regenerated area. The negotiated prices start from £150 000 with existing professional tenants already in place. The development is close to the city centre with continued strong tenant demand and units here are being offered at 25% below current market value.”
Furthermore, Doyle notes that if a South African investor had a mortgage of 70% of the value, the monthly cash generated from the investment after mortgage, rental agent’s fees and other affiliated service charges would be in excess of £3 000 a year or a return on cash of nearly 8% in sterling.
With the Reserve Bank relaxation of exchange controls, offshore allowances going up and a strong demand for buy-to-let investments in the UK; many South Africans are entering the British property market once again. Latest property industry reports have shown South Africans as the fourteenth largest nationality to invest in the UK during 2010.
“With buy to let mortgages becoming more available in the UK, it is fast becoming an investors market. Furthermore it has become difficult for many first time buyers to purchase their own homes causing a surge in rental demand.
“It is predicted that this scenario will not improve for quite some time, which is good news for landlords,” says Doyle. Propwealth + 44 20 772 068 33 www.propwealth.co.uk