Choose wisely where to put your money
The time for investing in the British property market may be right, but investors need to know where to buy in order to get the most out of the lucrative UK market. Lea Jacobs reports
THE relaxed exchange controls coupled with a stronger rand have certainly made it easier for South Africans to invest in property in the UK.
As with any real estate investment, knowing when and where to invest is key. However, the location of an overseas investment is of particular importance for those who are investing in a buy to let market in a foreign country.
The property market in the UK is currently divided into two distinct areas: greater London and everywhere else.
In greater London, which is usually defined as within the M25 ring road, an investor can expect yields of anything between 2% and 5% and capital growth is very good in this area. The downside is that investment entry prices are high, often driven by emotional home buyers and not by investors, and now even more so, by Russian, Eastern and European investors who are ploughing cash into UK bricks and mortar.
In other areas of the UK, the capital growth is low or even static, but cash flows are excellent. These are the areas that appeal to the professional buy to let investors, who are pumping money into these regions.
Propwealth, a UK based investment company run by South Africans, has identified two types of property investments, each catering to the specific requirements of their clients, be they looking for capital growth or seeking cash flow. One type offers good capital returns and yields, which will cover the running cost of the investment, and the other offers cash returns on the back of full property ownership. All investments are fully managed so they make ideal armchair investments for South Africans.
“The formula is simple,” says Anthony Doyle, director of Propwealth. “We invest in below market properties; we get the best yields possible, buy in up-andcoming areas and set up full management. This guarantees a strong tenant base and no headaches for the investor as the property is fully managed.”
Liverpool is fast becoming a new epicentre for growth in the north west. It is spending millions on regeneration and development and many head offices have relocated to this city. Its favourable lifestyle and transport links make it an ideal investment area.
“For those investors who are looking for great cash returns, Propwealth offers some handpicked properties in Liverpool,” says Doyle. “They generally cost around £40,000 to £90,000 and enjoy net cash returns of about 8% to 10% after expenses. Though these properties don’t have massive capital growth as yet, they enjoy phenomenal cash returns and beat the cash returns from many other investment vehicles by far. More importantly, the investor owns the property outright and doesn’t rely on third parties to look after their money.”
A good example of a recent investment in Liverpool featured a property located in a blue collar area that is being regenerated. “The property was bought by a Cape Town investor for £96,000. The market price after refurbishment is close to £125,000 and the net returns on the property are 10%. This stacks up to a fantastic currency hedge and our investor owns the freehold completely.”
Propwealth has also recently sourced a mixed-use property in Liverpool comprising a commercial tenant with an additional four residential flats on the first floor. “This particular property is a great investment as it is returning 10% yields and is priced at just under R3m. It offers a great rand hedge and with a tenant with a 17-year lease, it’s a low risk investment.”
Propwealth has identified new builds in Greater London as the best investment strategy for buy to let. The company has strong relationships with London Stock Exchange listed developers who discount a small portion of their properties to the company.
“It’s where the yields make sense,” says Craig Illman, a fellow director with the company. “We are non-emotional investors and we do not touch anything that has gross yields of less than 5% in London. In effect this means that after all expenses, including agent’s fees and levies have been paid, the property should not cost the investor anything each month.”
Propwealth works with large banks to secure their South African investors excellent offshore mortgages, normally at 70% to property value and at interest rates of 3.99%.
The directors of Propwealth will be in SA next month and are available for personal consultations. Visit www.propwealth.co.za for further information.
Liverpool is fast becoming a new epicentre for growth in the north west.