The turmoil that originated in China recently brought financial markets the world over almost to their knees - but UK landlords should be safe, according to a leading UK commercial broker, Commercial Trust. The Shanghai stock exchange suffered its biggest collapse in nearly a decade on 24 August, sending out shockwaves that rattled financial markets across the globe. London's FTSE lost £84 billion in a single day, whilst New York's Dow Jones index tumbled by 588 points.
Seen as a major hotspot for capital growth once the Cross Rail station opens, these one-bed flats in South East London with side views of the River Thames are selling from £399 000.Over a month later, rattled markets are slowly recovering and the troubles in China, the world's second largest economy, are likely to stall global economic growth in the future again. Many overseas investors are therefore buying in certain asset classes that remain safer than others, including UK buy-to-let property.
This is according to Propwealth, a UK based property investment company headed by South Africans Anthony Doyle and Craig Illman, who note that a similar trend is developing amongst South African investors.
The UK property market has been seen as stable with excellent growth potential by many investors, particularly those from the Far and Middle East, Singapore and South Africa.
“We have seen a large number of South Africans investing in UK property over the past three years, and this trend is growing year on year,” says Illman.
Buy-to-let landlords typically invest for steady, long-term gains and therefore should not be affected by the peaks and valleys that shares see on a day-to-day basis. If anything, the recent turbulence could convince more people of the relative security of bricks and mortar. By remaining as educated and informed as possible and seeking professional advice where appropriate, investors can maximise their chances of retaining a profitable asset that will weather any short-term economic storms that may crop up. Furthermore, slowing growth could force the Bank of England to keep interest rates down for longer, keeping the cost of borrowing low and adding yet more heat to the UK property market. Between rising rents and property prices, a growing private rental sector and a strengthening buy-to-let mortgage market, rental property looks like a strong choice for a savvy investor.
So what should Property Investors look for when buying in the UK to reduce the risk?
This development in a Victorian mansion building in Liverpool consists of 6 one-bedroom flats, which are selling rom £55 000 and will have net returns of 6.5% to 7% after costs.Many South Africans have been too heavily focused on London property, as they feel familiar with the city, says Illman, however, fast increasing prices are causing a drop in rental yields. “This has caused many investors to simply give up on investing in the UK. They are not familiar with other cities, they don’t know where to buy and what returns to expect. In short, South Africans are simply missing excellent investment opportunities.”
Propwealth was set up to address these particular concerns and to visit the opportunities, and offers South African investors inroads into high yielding rental properties based on local knowledge, says Illman.
“As an offshore investor, one should focus on regeneration areas, which will offer capital growth. Ideally also look for areas with plenty of tenants who are not reliant on one source of employment.
“Use a benchmark rental yield of around 9% gross (outside of London) and it is also important not to forget a strong management team. This team should deal with rental collection and tenant screening as well as general maintenance.”
Lastly, stay on top of the investment and make sure to check rental income every month, says Illman. Run the property like a business and be vigilant. Also, one might consider looking at a more tax effective purchasing entity like a UK limited company, if the intention is to buy a number of investments.
Historic returns over 4 years
Many people are looking at the UK buy-to-let market as a long-term retirement plan, he says. As an example, an investment made in a one-bedroom flat in 2012 in Liverpool (valued then at £50 000) would have generated an annual net rental income of around 7% on average. The investment would now be worth £58 000 (in line with market capital growth), so the investors’ cash return (excluding tax) would have been in excess of 12% per annum including cash and capital growth.
“Obviously if you take into consideration the exchange rate differentials, capital growth and net rental returns, the investment has more than doubled in this time period from R650 000 to R1 400 000, as the exchange rate has dropped from R12.90 to £1.00 to R20.5 to £1.00 in 4 years.”
A typical London one-bed, off-plan property bought 4 years ago would have been sold for around £220 000. If the investor focused on zones 3-5 and acquired in a regeneration area in developments that catered to professional tenants (these include lifestyle aspects like gyms), the property would have easily attained the level of £400 000 plus.
What has proved popular with South Africans buying in London, is the fact that they only need to put down a 10% to 20% deposit to acquire such investments and can sell on before completion of the project (which can be 2 or more years). However it is important to note that although “flipping” of properties can be lucrative in a growing market, if the market stagnates the investor could be out of pocket, or worse still, not be able to sell on.
As one can see, these returns have not in any way been affected by the negative sentiment in the global markets.
“Investors who repatriate their income streams back to South Africa are certainly smiling,” says Illman. ”However, using the exchange rate as justifying annual returns is a major variable which we do not take into our figures as that is something we cannot control. We prefer to keep the returns in Sterling as this reflects actual on-the-ground returns.”
Latest investment opportunities
These investments in Liverpool are in character buildings while the opportunities in London are situated in lifestyle developments, which offer concierge, gyms, shops, pubs and restaurants. All properties are close to major transport links like trains, busses and ferries.
Windsor House in Liverpool
Illman says this development in a Victorian mansion building consists of 6 one-bedroom flats, which are selling rom £55 000 and will have net returns of 6.5% to 7% after costs.
Pavilion Square in South East London
Seen as a major hotspot for capital growth once the Cross Rail station opens, these one-bed flats with side views of the River Thames are selling from £399 000, and can be mortgaged, says Illman. Completion date is set for mid 2018. Capital returns over the past three years have been in excess of 10% per annum.
Propwealth, a UK based South African focused property investment company will be in South Africa at the end of October and early November 2015 meeting investors regarding Liverpool and London developments. For more information, send an email or visit the website.
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