Beyond the obvious benefits that come from diversifying your investment portfolio to include international properties, one needs to ask, “why would a South African want to invest in the international property market ?”
South Africa’s economy has fallen considerably in recent years. What was once a highly prosperous economy in the first decade of this millennium, has slowly eroded into a struggling mess. The political corruption in South Africa has caused vast inequality, coupled with high unemployment rates which have stagnated growth; the economy has contracted by around 2.2% in the first quarter of 2018 alone.
The volatility of the ZAR to GBP exchange rate has also been a concerning factor over the past 5 years, ranging between R15.2 and R24.1 to the pound, with a percentage change of 36.85% since 2013.
The South African property market has not fared much better. Property prices, in real terms, are still 20% lower than at the end of 2007, emphasising the lack of recovery.
Why overseas ?
As an example, the U.K. has always been considered a stable market for international property investors, and the average value of houses has increased by 18% in the last 3 years.
In recent years, the regeneration of smaller towns and cities in the U.K. has increased the demand for residential property. The buy-to-let market for entry level properties (from £50,000 upward) is experiencing a boom.
This market has two advantages that investors are excited about; the first being the increasing prices of properties over the past few years, which allows for capital growth; the second advantage is seen through the higher than usual property yields (rental income expressed as a percentage of the property’s value).
The city of Liverpool, which has seen large regeneration efforts, has properties for sale in the region of R800,000 which produce gross yields of up to 9%.
So why now ?
The U.K.’s housing shortage is a big concern for the country. Over 300,000 new houses are needed each year to keep up with the country’s increasing population.
Then, in June 2016, the U.K.’s referendum vote for Brexit caused the pound to fall to a 30-year low, and helped the Rand to appreciate 35% in value against sterling. This creates an immediate opportunity for South Africans to acquire British assets with greater affordability. But don’t expect the pound’s loss in value to be permanent, which means you need to act sooner rather than later.
Also, international investors are reassured by the country’s renowned legislative framework that underpin the security of its property sector. The U.K.’s Land Registry gives buyers from all over the world a high level of assurance and confidence.
Where to look ?
Invest in cities with strong economic performance. A great example is Manchester, with annual capital growth in double-digits, and rental growth 13 times the pace of London. All this being driven by a young and growing population, economic success stories (such as the BBC and ITV relocating to Media City, Salford) and years of property under-supply.
Manchester is known as the Northern Powerhouse, and will benefit from the government’s plans to spend over £7bn to create a world-class infrastructure and attract billions of worldwide investment in the next 5 years.
Two of the U.K.’s five largest Universities, and a further two Universities, make a total of four institutions that attract over 100,000 students each year. Private investors, multinationals, pension funds and overseas governments… Manchester is currently everyone’s favourite city to invest in.
In summary.
Investing in property should be viewed as a long-term investment.
If you are investing in property with a view to letting it, to generate rental returns, it’s all about location, location, location. It should be close to public transport and infrastructure, amenities, and possibly Universities, allowing easy commutes for tenants to their places of work or study.
Northern Cross Wealth Management provides a truly end-to-end investment service for international property investments, which includes:
Identifying property investment opportunities in desired areas.
Helping to secure International Mortgages.
Establishing overseas Bank Accounts and assisting with FOREX transactions.
Assisting with all Reserve Bank and SARS queries.
Providing tax planning, and advising on the setting up of structures in which to hold the property.
Assisting in finding tenants, to help achieve the desired rental returns.
Speak to Northern Cross Wealth Management today to find out more about the opportunities for investing in International Property.
