Anyone with a spare R1m or R2m should consider real estate investments offshore
Millennials are making their mark in the South African property market. According to statistics from Comcorp South Africa, they have in the past two years made up the lion's share of bonded home loan applications. So, what are the other investment opportunities for people who are settling into their prime spending years? Megan Copley, the director of International Real Estate says anyone who has a bit of spare cash should seriously consider investing in overseas property. Copley has spent a considerable number of years working in the UK and European property markets and gave BizNews tips on which cities investors should consider. She said the overriding factor in an overseas property investment should be confidence in the country's property market and not to fall in love with Victorian charm. – Linda van Tilburg
There are opportunities for younger investors in overseas property
Sable has just launched a real estate investment team. The idea is to help South Africans to invest in real estate offshore, to migrate a little bit of their wealth if they choose to do so. A big passion of mine is helping people who are younger than your usual investor is perceived to be. So, those in their 20s and 30s who are looking to generate their wealth now. I'd like to help them do that through offshore property. I am passionate about it and understand it. It is a project I can take on with any young investor who needs hand-holding through that journey.
The UK has 87 types of home loans and interest rates are lower
When I was younger, I always thought only parents could invest, but really, if you are looking to potentially buy your first home or you've got a little bit of extra money that you're putting towards another investment towards retirement. I would say that anyone who has got a spare R1m or R2m should consider real estate investments offshore. There are property markets in the UK, for instance, big cities within the UK and outer cities where one can buy a property at just R2m and taking a mortgage abroad, because believe it or not, some South Africans can get mortgages in the UK. There are many lenders. There are 87 types of lending available and the interest rates are significantly lower than you'll be used to in South Africa. That is just a little bit about it. One would need to speak to us for a period of time to understand their personal circumstances, but it's an investment available to someone with R1m or R2m.
Look outside London for UK property investments
At the moment, for a foreign investor, my advice is always to look outside of London. Of course, London is one of the most expensive cities in the world, but the UK has many buzzing hubs where there are great businesses, big names, PWC head offices, Google head offices where you can buy property and get a fantastic professional tenant. There are many factors at play in the UK that lends to a booming property market and it's a great place for investors. At the moment, we are finding most of the property that we sell is in Birmingham and Manchester, or just outside. They are great places because there is a housing demand and tenant demand for residential property.
Newbuild properties [are] great for an investor because it presents less hassles. The developer is accountable for a warranty on the build. All of your appliances and so on will be new. So, from a practical point of view, you can expect fewer hassles and if you were to put down between £50 thousand and £100 thousand – roughly R1m to R2m, we would hope to find you an asset worth about £175 000 to about £350 000. And that could be anywhere from a studio to a two-bedroom apartment, possibly three bedroom. It's more like a two bedroom and in a new development in those regions, you could aim to achieve around 4–6% in rental return. What's really interesting, though, is that on that purchase, you would be putting down a deposit, taking out a mortgage and the rental of the property would cover the interest on the mortgage, so the property doesn't cost money every month. But with the historic capital appreciation in the UK, the value of that asset [should grow] each year somewhere between 5% and 8%. That is the value of the whole asset, not just the £50 to 100 thousand deposit. That is really the benefit of investing abroad.
It is all about confidence in an overseas property market
The UK market is interesting because it has so much foreign investment. In my own opinion, people have so much confidence in the UK, and it is all about confidence. How you buy and why you buy shows how confident you are about a marketplace and its stability, and the UK is stable. Even though there have been dips in property prices, there has been an overall rise year-on-year in those prices. Although there was a period during the recession when property prices came down, they are way up on those previous crash prices again. So, it is about confidence. During Covid-19, when there was a little bit more volatility in the market than we'd seen before, the UK Government incentivised purchasing in the market by removing a stamp duty*. The South Africa equivalent is a transfer tax. This enables purchasers to take all of the money they had saved up to buy a property up to £500,000; the ceiling for the removal of the tax. Young professionals who had saved up enough money for a deposit but couldn't afford the transfer tax, didn't have to pay the transfer tax. People moved, and they purchased. There was a buzz and confidence in the market again and action and movement. It drives price increases. Again, there was no downfall in certain segments of the market. In what we call the ultra-high net worth market of over £5m, there was a slight downfall, but certainly not below £1m, which is where our investor market mainly sits.
* The UK has since reintroduced stamp duty.
In Europe, Portugal and Germany are good investment destinations
There are so many options in Europe. I have spent the last five years working between France and London and really understand that market. At the moment, because of many factors – travel, communities – I find South Africans are drawn to places where they can find a community of other South Africans. Then there are language barriers. I would say that a great place to invest at the moment is Portugal; an investor or a purchaser can buy a golden visa or the route to a golden visa. This is different; you can actually invest in property regardless of the option of a passport to European nationality. Property in Portugal is a safe haven, in my opinion. In other places, Germany is a great place to invest in the cities of Frankfurt and Berlin. They have all seen great property price increases, fantastic tenant demand again. Between Portugal and Germany, they are also hubs for big offices for tech workers who can work remotely. These are cool cities with a good tenant demand, which is what any investor or landlord wants to hear when they're buying a property abroad.
Diversify a property portfolio with overseas assets to mitigate local risks
I think it is about diversification. Unfortunately, in South Africa, our interest rates are quite high if one is lending, which can take away from the investment. I think it is important that somebody does what they need to do for their primary home when it comes to purchasing property and living in South Africa, but there are many reasons to invest offshore. One is the strong currency in Europe and Britain. It shows lower volatility than the rand. So, it is a safe haven for a currency, for you to grow an investment portfolio somewhere like that and convert to rands in the long term. The confidence in the market, which is what we spoke about earlier, is important. Property prices see a rise per year. I specialise in property investment but whenever you're looking at any investment, you've got to consider inflation, interest rates, capital appreciation and the currency in which all your assets are based and all of those in the UK present a very good investment case.
Established property markets take care of the worries of property investors
One other point I want to mention is that when you are considering buying a property, you should always think practically about property in the UK or in established markets like that. Unemployment is low, the property management market is also very established. Because of low unemployment, you are highly likely to get a good professional tenant, and you can rely on the very competitive rental market and competitive management market. You will be able to find somebody over there to look after the property. So, all of the worries after investment, outside of the financial reasons to do it, are taken care of in your more established markets like the UK, Germany and Portugal.
Don't fall in love with old-world charm, invest in new developments overseas
There are risks in everything you do and our job at Sable and my job as a real estate adviser in this case, is to mitigate those risks as much as possible. [Look for] a good developer with a good brand, a track record and something new so that you don't have too much hassle.
I would suggest you go to an expert who understands the markets. You need good advice. You need to trust someone that you work with, and Sable is a brand synonymous with integrity. It is a really good business to come to, and we can take care of anyone and provide an end-to-end service. We have forex teams, tax consultants and accountants. We have a wealth team and if someone is looking to build a portfolio, we will take them through the real estate purchase, help them find something that is suitable , something to suit the risk profile of that buyer and what they are looking to achieve from that investment. It really is about the right people who have experience in the different avenues of the purchase and making sure you are looked after as a buyer moving forward; that you know what your obligations are; and, from a tax perspective – both in the country that you purchase and the country where you're tax residents – what you need to understand in long-term ownership.
We would do all that; it would be our role as advisers in the process. It is not a difficult process. We also have a mortgage team in-house and will sustain an intent service so the purchaser is well informed and ready.
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