Look­ing fur­ther for ve­hi­cles

Michelle Swart finds out more about why South Africans are in­vest­ing in UK prop­erty for their even­tual re­tire­ment

Business Day - Home Front - - HOMEFRONT -

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

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