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

Business Day - Home Front - - HOMEFRONT -

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.

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