While foreign properties might appear to be an attractive option for South African investors, Rael Levitt, chief executive of Auction Alliance warns that without some specialised guidance, property investors could risk losing a fortune in these markets.
The increase in the annual overseas allowance to R4m, coupled with the favourable exchange rate of the Rand makes overseas investments an attractive option.
The increase in the annual overseas allowance to R4-million, coupled with the favourable exchange rate of the Rand makes buying property overseas an attractive investment option.
Broll investment broker, David Adams claims that commercial property investments in Britain have been an interesting and rewarding diversification for South African investors and says that now is an opportune time for people to invest in the UK market.
He says commercial property capital values in Britain fell by between 40% and 50% in the current cycle. However, Adams points out that these capital values have risen and pricing has recovered by up to 30% in some sectors of the commercial property market.
“The prospect for rental growth exists in central London and other parts of the UK over the next five years as rental levels recover after the downturn in the commercial property market,” says Adams.
Providing investors with excellent covenants, Adams explains that Broll’s register of UK investment-grade properties often have lease structures in excess of 10 years, and that these leases are fully repairing and insuring (FRI).
“This makes ‘passive investment’ from South Africa possible,” says Adams.
While the availability of debt in the UK is generally restricted to institutional grade investments with strong property fundamentals, the all-in cost of debt, based on a five-year fixed rate, is available at attractive levels of between 4,5% and 5%.
“This means that direct commercial property can be acquired for yields significantly above the cost of funding,” says Adams.
Levitt is more cautious about overseas investments and says that while properties in Britain, America and Spain are being offered on excellent terms and at extremely low prices, an overseas investment might represent a hedge against the volatile exchange levels of the Rand.
But he warns that in the short term there is a real risk for South African investors that they may be buying property in an unfamiliar market and may also be exposed to what he calls “dodgy” investment schemes.
He claims that many properties that are being sold sight unseen to South Africans represent questionable assets because they may have been vandalised by their foreclosed owners and may require a substantial investment to make them habitable.
“Investors who are considering buying a property overseas should do some serious research and ideally should visit the area to inspect the property they are considering,” he says.
“Investments in the UK are similar to those in South Africa and more accessible as well but if anyone is considering investing in property, they might be better advised to invest in developments in South Africa,” says Levitt.
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