The con­ti­nent or be­yond: Off­shore prop­erty

Finweek English Edition - - INSIDE - BY GLENDA WIL­LIAMS

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.

EX­IST­ING PROP­ER­TIES

Many in­vestors take this route, es­pe­cially Vic­to­rian houses, which can be split up into flats that can be rented out separately.

STU­DENT IN­VEST­MENTS

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.

PRO­TECT YOUR­SELF

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.”

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