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Investing in offshore property has several advantages for investors at any level. Diversifying your portfolio, whether you’re just starting out or are in the process of adding to an established one, means that you are spreading the risk. As the adage goes: never put all your eggs in one basket.
A major consideration for people in South Africa is where to invest in property and how to go about it. Perhaps the thought of investing in offshore real estate seems rather unattainable or expensive. It would be far easier, and make more sense, to invest in a South African property, right? Well, perhaps not.
Why consider investing in an overseas property rather than a local one?
Buying international real estate and investing in more stable economies is a useful method of protecting yourself, your family and your wealth from instability that may arise at home such as currency devaluation, trade wars, geopolitical fallout and local political upheaval.
Property markets in Europe tend to be quite mature and stable, which makes offshore real estate an attractive investment route. You can create wealth through a tangible asset that you have complete control over, in terms of what happens to the property and how it’s managed. You will be investing in and possibly getting rental yields in a foreign currency. For instance, in the UK, the Pound is strong, unemployment is low (which is great for your potential tenant profile), interest rates are low and the property market is historically very strong. Not to mention property is in high demand and low supply.
A concern that potential offshore property investors tend to have is how the day-to-day running of a property in another country will work. If you choose to invest in a developed market, they will have established and reliable property management systems, which will save you the burden of dealing with the management yourself.
With well-considered property investments abroad, you can grow your wealth through capital appreciation on the property whilst enjoying income in stable currencies such as Euros, Pounds or Dollars.
Case study: Why UK property is a compelling investment
If we look at the UK property market as an example, it’s buoyant and well-established with a good tenant profile and a proven track record. You will be able to take out a UK mortgage at a very low-interest rate and have a passive income via a rental investment.
The UK has been a go-to for property investors for some time, thanks to stable growth, a strong currency and high demand. With ongoing infrastructure changes and the reinvestment of public funds into the regeneration of suburbs and cities alike, this established market remains an excellent place to hold property.
In the UK, there is a high rental demand and it’s currently going through a period where there is an abundance of skilled jobs to fill – i.e., there are more jobs than there are people to fill them. Considering the lack of housing in the UK and its low rate of unemployment, many tenants are working professionals who are looking to rent long-term and have sufficient job security to commit to a long lease.
When you have a stable tenant, you have a steady rental income (which can increase between 3-7% per annum in line with inflation). But another reason to consider the UK when investing in property is that you’re dealing with a mature property market that knows how to mitigate its risk to you as the owner. The UK has efficient systems in place for property management, thereby stabilising asset maintenance post investment.
The UK is very confident in its economy and, in turn, the banks are supremely confident in the property market, and they’re willing to lend to foreign investors. In the UK you’re looking at around a 4% interest rate on your mortgage, which can even be fixed for five years. Compare this to South Africa where you’re looking at a 7% interest rate, and offshore real estate is starting to look a lot more enticing.
Another advantage is the low cost of entry to property in the UK. You can invest as little as R1 – 2 million and get a loan with a 4% interest rate to buy a property to the equivalent of R6 million. Aside from the rental income you’ll be earning monthly, you can also see between 5-8% growth on the value of the property per annum (based on historic data).
In the UK there is an increase in high-quality new property developments, with the advantage that you can be assured you are buying a property that is built to high standards and won’t require maintenance and renovations for the foreseeable future, something an investor wants to avoid when based far away. Developers are also held to a warranty for between five and ten years after the building has completed.
Acquisition costs typically include transfer fees (known as stamp duty), mortgage arrangements and legal fees. When buying off plan, stage payments are staggered over a set period until the property is completed. This could be convenient for South Africans who are in the process of sending money to the UK or are still building offshore funds.
How Sable International’s property investment team can help you
An investor should investigate all their options, which is where Sable International can help you. Depending on your intended investment amount, we suggest options for you to consider from student property and care homes to private homes or medical facilities.
We are an advisory service, meaning that we give our clients advice on the best property to invest in to suit their risk profile, with a focus on residential and commercial properties. In addition to assisting with finding the perfect property for you, we also guide you through the entire process from applying for a mortgage to finding the perfect tenant to fill your property and appointing a trusted business to manage the property.
With an extensive understanding of the international real estate market, we can help you build and diversify your wealth through investment into an offshore property portfolio.
Our aim is to provide you with the best possible properties, sourced in cities that we deem to be secure markets through our extensive research and understanding of local fundamentals.
Whether you are looking for an investment property to build a property portfolio, a new home or a holiday home abroad, we can guide you through the process and take care of all facets, including ownership structure, taxes, foreign exchange and property purchase advice. Get in touch with us at mailto:[email protected]or call +27 (0) 21 657 1570 or +44 (0) 78 438 00079.
Read also:
- There are several shades between leaving or staying in South Africa
- Financial emigration vs tax emigration – understanding the difference
- Thinking of moving abroad? Don’t let fear be your guide
