The continent or beyond: Offshore property
South Africa’s interest rates following the 2009 property slump have favoured local property investors. But as local interest rates become somewhat less favourable, investors might be tempted to turn their attention to properties elsewhere on the continent or to those farther afield.
Property investment in parts of Africa has been fairly bullish in recent years with property investors looking to capitalise on a rapidly expanding middle class on the continent. One such country is Mozambique where rentals in the popular areas of the capital Maputo now command prices of between $3 500 (R37 324) and $5 000 (R53 320) per month for a new two- or three-bedroomed house or apart- ment while older-style properties rent for between $1 000 (R10 664) and $2 500 (R26 660) per month. Mauritius, too, has seen an upsurge in investment into its residential market where a third of all Mauritian integrated resort scheme properties and smaller-scale scheme properties have been bought by South Africans.
But for those still skittish about investing in a continent that has historically been fraught with political and economic instability, investment in property in a First-World country such as the UK is still top of the agenda. Yet the UK property market may be entering a period of cooling on the back of increased building activity, a strong currency, new mortgage lending criteria and rumours of interest rate hikes.
High property prices and low rental yields in Central London and even Greater London, make properties here mostly unattractive for most currency-challenged South Africans requiring a decent yield in order to cover mortgage and services costs and possibly still put some money in the bank. But, from a capital growth viewpoint, London still cannot be beaten. House prices in London have risen by 20.1% over the past year with the average home now costing £492 000 (R8.8m) – see graph. Rents in the capital are now double that of the rest of the country with the average rent in London around £1 400 (R25 120) per month compared with nearly £700 (R12 560) for the rest of the UK.
That said, the UK property market
does still offer opportunity for investors wanting to develop their wealth and cash returns in a strong First-World currency.
Given the diff iculties of investing in a country far from one’s own, many ill-prepared investors are caught out by high prices, wrong areas and marketing tactics. Yet numerous savvy investors are able to build lucrative property portfolios, normally over a period of five to 10 years, says Anthony Doyle from London-based Propwealth, a property investment company catering to South Africans. Below are their recommendations for investing in the UK property market.
NEW BUILD PROPERTIES
Always invest with reputable construction companies with good track records. Developers in London are currently offering discounts from 2%-10% off list prices through property investment companies like Propwealth through its bulkbuy abilities. This way investors get better yields especially if the development offers concierge, gyms and on-site shops.
Many investors take this route, especially Victorian houses, which can be split up into flats that can be rented out separately.
Invest close to the universities, make sure the campus is one of the best in the UK, and has growing student numbers.
“Invest in small developments [maximum 30 f lats] and make sure that the f lats are completely student-orientated. This means WiFi, TV, fully furnished and modern,” says Doyle. “We have identified Liverpool University as a hot spot for investors as there is a shortage of 29 000 beds in the city.”
CONSIDER HIDDEN COSTS
Take into consideration all the hidden costs, which eat away at the gross yields, including levies, mortgage costs, etc. Companies like Propwealth present investors with cash f low forecasts.
LOCATION, LOCATION, LOCATION
For the best value and yields in London, look in the South East. Capital growth is the reason for buying in Greater London. Outside London, buy for cash f low now and capital growth in the medium term. Look for neighbourhoods of regeneration such as Liverpool, which is a growing city.
FINANCING THE INVESTMENT
At the moment, offshore mortgages are only granted to non-UK resident investors over a purchase amount of £144 000 (R2.6m). The banks work on a maximum lend of 70% loan-to-value and work to the same affordability criteria as South African banks.
When investing in the UK, you use your own solicitor to look after the process. The solicitor will deal directly with the seller’s solicitor and verify everything that is presented as part of the sale. Propwealth offers a full investment due diligence as well.
RENTAL AGENTS, MANAGEMENT FEES AND OTHER COSTS
Cost in the collection fees from rental agents. Reputable companies not only source, screen, but also manage the tenant.
A final cautionary note from Doyle: “South Africans are often caught up in the emotional aspects of UK property. Be guided by rental yields and never get caught out by glossy brochures.”