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

Business Day - Home Front - - HOMEFRONT -

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.

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