Local investors put their money in London market
South African’s are beginning to invest heavily in the London property market. Lea Jacobs finds out why
THE London property market was the last global market to go down in value and was the first global market to recover. Interestingly enough, however, prime real estate in the city is now worth a staggering 47,3% more than it was at the bottom of the credit crunch in 2009.
There are a number of very good reasons for this but the major factor driving property prices in the city remains supply and demand. The situation has not been helped by the fact that only 121 200 new homes were built in the UK during the past year and a half, the fewest homes built since 1923.
As an island nation, Britain has a population that is 50% higher than SA’s with a landmass that is five times smaller. Upmarket property in London has always proved to be a major draw card for foreign investment and at this stage 65% of property that is priced over £5m mark is owned by overseas investors. In addition to this, it is estimated that foreign buyers have invested) £4,3bn in the London property market over the past 12 months.
Mike Smuts from Smuts & Taylor Limited says he wouldn’t currently consider investing anywhere else in the world. “We have looked closely at a number of other property markets over the years and have yet to find a market underpinned by the same solid fundamentals as London. Investing off-shore should be about wealth preservation, more so than wealth creation and my philosophy has always been to trust, tried and tested, developed markets to build a balanced, diversified and conservative portfolio that will not increase my risk.”
He says that the goal for the average South African investing offshore should be to diversify their portfolio and to spread their risk. The chances are that, as a South African investor, they are already heavily invested in the South African economy, which is an emerging economy itself. By investing in other emerging economies, investors will significantly increase their risk profile.
While there is every good reason to get involved with the London property market, it is important for investors to remember that as with every other property investment, position is key. In the past it has been estimated that 80% of those investing in foreign property markets lose money and one of the main reasons for this is that the buyer is unfamiliar with the area and makes a decision based on wrong information.
“Being based overseas can present certain challenges when buying property in the London, namely a lack of local market knowledge, lack of time to view potential properties and out of date price statistics,” says Smuts.
Despite this, there are a growing number of South Africans who are choosing to put their cash into the London market.
“Since the Reserve Bank’s significant relaxation of exchange controls in October 2010 we have seen a large influx of high-networth South African clients looking for assistance in acquiring property in London.”
Wealthy South Africans are highly prudent with their investments and with the continued uncertainty around the prospects and timing of the global economic recovery, most favour the tangible and straightforward nature of residential property as an investment. “This risk aversion and the consequent trend of ‘flight to quality’ have been the main drivers for South African investors as they attempt to avoid economic and political uncertainty at home,” says Smuts.
Surprisingly however, wealthy South Africans do not seem to base their decision to invest offshore wholly on fear of the local currency fall in value or local political instability but rather by solid financial planning that includes diversification of asset classes and markets.
As a result local buyers also take a very different view on the London market as a whole in that they do not see their property as a short-term investment. In fact, some don’t view it as an investment at all, but rather as a longterm asset that will stay in the family for generations to come.
This is mainly due to the longstanding view that the London property offers a safe haven, the enduring attractions of the city’s excellent schools and the strong economic and social factors that makes it the investment destination of choice for the worlds wealthy.
Smuts says that central and south west London remain firm favourites with South Africans and most clients purchase in the price range of £300 000 to £500 000 for investment purposes that generate an average gross yield of between 5,5% and 6,5%.
That said, he also notes that there is a growing interest from South Africans who are purchasing with the view to relocate or buy a second property that they use when visiting their children or friends residing in London. “For these clients, trophy properties in the most desirable locations are at the top of their shopping lists and we have had a number of instructions recently for residential properties in excess of £1m.”
Regardless of the reason for the buying decision, anyone considering investing in London needs to conduct extensive research and partner with those in the know before investing.
The Pan Peninsula at Canary Wharf is home to London’s highest residential apartments, which rise 500ft above a global financial district.