Cutting your teeth on UK commercial property
Investing in dental property might not be the first port of call for offshore property investors, but punishing exchange rates demand that budget-friendly alternative options be explored. dema
courtesy of punitive exchange rates there are not many of us who can now afford to buy property in the UK, South Africans having lost half their wealth in the last six years as a result of currency decline. London especially is mostly out of reach for the majority of South Africans.
“Everyone is interested in London. We get five or six calls a week, completely unsolicited and especially for the ‘biltong belt’ areas like Wandsworth, Putney and Richmond. But prices here are upward of £600 000 (R13.1m) for a one-bedroom unit and for South Africans it is just a bridge too far,” says Chris Immelman, MD of Pam Golding Properties International and Projects Division. Less prohibitively priced opportunities in the residential sector occasionally show up on the radar (see box), but finding affordable investment opportunities for South Africans increasingly requires exploring alternative options.
It’s an option that may not be front of mind, but investors determined to pursue the UK property market can sink their teeth into dental property from £125 000 (R2.7m) that guarantees the investor an income stream for 20 years, Immelman tells finweek.
In the last few years, the dental sector in the UK, valued at R5.8bn, has shifted from an informal ‘cottage industry’ to an efficiency-driven market sector that attracts investment interest from both corporate and private investors. The UK corporate dental market has grown dramatically between 2010 and 2014, and was estimated to be worth around £1.3bn (R28.3bn) in 2013/14, according to a report by Laing Buisson.
“Up to a few years ago the dental business was very regulated with limitations on the number of dental practices owned,” says Immelman. “The abolition of that regulation saw the emergence of large corporate groups buying dental practices, the two largest being Integrated Dental Holdings (IDH) and Oasis.” The corporate dental operators – dental practices being their primary business – are not particularly interested in owning the properties or becoming landlords. But having acquired the dental practice often requires acquiring the property, which they then rent out to the dental practice.
And this is when these properties, dotted around UK villages, with their AAA grade corporate tenants who have signed long leases, become available for purchase.
An attractive investment opportunity
Partnering with SIRE Properties, a UK-based investment company that specialises in finding and
Dentists represent one of the lowest default risks, thus offering a low-risk tenant profile and very low vacancy risk. “With a 20-year signed lease in place and the business rights of the practice sitting with the building, not the dentist, you can gear 50% without even being asked for financials.”
managing niche property opportunities, Pam Golding Properties says the offering of affordable lot sizes of dental property represents secure, predictable longterm income as well as capital growth prospects.
As a landlord to corporate dental tenants, a large proportion of income is guaranteed from the government through the National Health Service (NHS). And dentists represent one of the lowest default risks, thus offering a low-risk tenant profile and very low vacancy risk. “With a 20-year signed lease in place and the business rights of the practice sitting with the building, not the dentist, you can gear 50% without even being asked for financials,” explains Immelman.
Typically in the £200 000 to £450 000 (R4.4m to R9.8m) price range, dental properties are normally former residential units, affording investors a safety net via alternative use value and exit flexibility with a potential buy-and-sell-back option through SIRE Properties.
“The sweet spot for South Africans is £350 000 (R7.6m). They can’t spend £600 000. Here they own the building entirely, have a corporate AAA tenant who looks after the building and have three different valuations – one with the corporate tenants in place, one with an alternative tenant other than a corporate tenant, and vitally important, the property’s worth as a residential home. If all else fails, it has a residential value and often that value on day one is higher than that paid for the property. So the underpinning is all there,” says Immelman.
And, it seems, dental property investment comes with no unexpected costs. “Leases are normally 15- to 20-year fully insuring and repairing leases. The landlord pays for nothing. Not for insurance, painting the building outside or fixing the roof. And it has to be kept in pristine condition because dental practices are all NHS regulated. From day one you get between a 6% and 8% yield, better than a residential yield, and good income for the next 20 years,” says Immelman. “Rental escalates according to inflation, an inflation study done every five years. If inflation goes up, rentals can be increased but never decreased.”
Understandably Immelman is upbeat about traction in the dental property market confirming that 10 units, a value of approximately £6m (R130.7m), have already sold to South African investors.
“If I can bring 100 of these properties to market, I know that a corporate here in South Africa, probably one of the listed funds, will take them. Because it generates income, all the time. And they can gear off that,” concludes Immelman.
Chris Immelman MD of Pam Golding Properties International
and Projects Division
Vincent Row apartments in Wimbledon