Buying abroad offers some healthy returns
Michelle Funke finds out more about South African investors snapping up buy-to-let properties in the UK
WITH the South African Reserve Bank increasing foreign exchange allowances, many people are looking offshore to diversify their investment portfolios.
The UK has always been an attractive option for South Africans and the property market has come full circle since the crash of 2008. Today, savvy UK-based buy-to-let investors are snapping up properties throughout the country as the new wave of property growth begins.
What is driving this new boom in real estate investing? According to recent studies, the UK is fast moving from a property ownership scenario to a renters’ scenario, much like Germany and Switzerland, which bodes well for the buy-to-let investor.
Furthermore, the UK government is falling short on the number of new builds being delivered by more than 120,000/annum. Countrywide population numbers are on the increase, which is estimated to hit 70-million by 2020 and a large gap is developing as the average age of first-time buyers increases from 25 in 2006 to an estimated 38 years by 2020. This creates a huge rental market, as these people now have no option but to rent.
Many South Africans are looking at a long-term rand hedge as well, as the pound is holding its own against the euro.
The overall strategy for many investors is that the cash returns, excluding any potential capital growth, are far higher than having money sitting in a bank account.
Anthony Doyle, a director of Propwealth, a UK-based property company aimed at assisting South Africans to invest strategically in the UK property market, says: “There is a huge opportunity in the UK currently for buy-to-let investors. The government is spending a large amount of money on regeneration in certain cities, new rail networks and infrastructure planning. This, in turn, creates jobs and offers the investor who buys in these areas very good returns of between 6%-12% gross yields. However, it is important to identify these locations before the prices rise and affect yields. This all takes time and effort and this is probably the most important aspect of property investing — being ahead of the herd.”
Many South African investors are splitting their property portfolio between capital growth areas and cash flow areas. London is traditionally a capital growth area and cities such as Liverpool enjoy excellent cash flows with capital growth in the medium future, as the prices are a lot lower, but with strong tenant demand.
Doyle says that a well balanced UK property portfolio would incorporate both — as it will balance capital growth with cash flow. “The concept of land and property ownership is part of the psyche of the UK citizen and has always offered a safe and secure investment vehicle. There is plenty of transparency when one invests in UK property, from buyer-appointed solicitors to comprehensive due diligences done by our company, so risks are greatly reduced.”
He says that a true example of what South African investors have been buying is in a development called The Egerton in Liverpool where investors are getting a gross yield of 8% with purchase prices of £67,500. The one-bedroom flats in this period Victorian building were snapped up in five weeks.
Doyle says that in London, many South Africans have been investing in Stanmore Place, a new development in north London. Its location is within a few minutes of the Jubilee underground line and only 23 minutes from Bond Street, central London. Stanmore Place offers tenants all the lifestyle elements of London with a gym, concierge and parking. Prices start from £250,000 for a one-bedroom apartment and offer yields in excess of 5.5%.
Doyle strongly advises that South Africans only invest when there is a full back-up service available, and this includes reputable builders, full legal service, the right tax advice and full management including rental collection.