*This content is brought to you by Carrick Wealth, leaders in wealth and capital management
By Anthony Palmer*
The news — fake or otherwise — bombards us with reports of global economic and political risk and the accompanying volatile climate. The savvy investor doesn’t allow this uncertainty to cloud their decision-making abilities. Instead, they remain level-headed, looking for ways to strengthen their investment portfolios to better insulate them from the unpredictability of such perceived risks.
The solution is to go back to the fundamentals of investment strategy: prioritising asset diversification. One of the best ways to diversify is through property. A recent study conducted with more than 500 current and aspiring investors from 44 countries reached an overwhelming consensus, being that international property investment not only provides a solid source of income, but is more stable than stock investment portfolios. The same study shows that investment concerns in 2017 remain fundamental: “stability, reliability, diversification and low correlation with other major assets”.
Navigating the complexity of offshore property investment
While offshore property investment is integral in diversifying your investment portfolio, it is also a complex process that must consider the basics of supply and demand, growth predictions, as well as numerous technical aspects that are crucial to its success. All these must be factored into your international property investment strategies. Neither two real estate markets are the same: what is true of Berlin’s residential market may not apply in South London. Still, these distinct values bring a welcome risk-reduction element to your portfolio.
One example: some investors looking to the UK property market may feel nervous about the government’s attempts to temper the property market through a tougher approach to lending. However, this is an indication that the mortgage lending industry is becoming more resilient, eliminating, for example, “unsuitable” buy-to-let landlords and creating a safer market.
Residential property your safest bet
Deciding on the type of property to invest in is key and should be aligned to your investment goals: Residential property provides capital growth and rental income however commercial property gives lower capital growth but higher yields. Leading research shows that in 2017 property, especially residential property in the UK, US, Australia and Germany, should receive serious consideration in any strategy to diversify your investments. It is not simply a matter of choosing a city because you like it or have relatives in the area. You need to know the city itself, its politics, and its potential. Other critical factors to consider are rising populations that trigger rental demand, increasing employment that ensure economic stability, and infrastructure projects that sustain growth.
Residential property investments in prime urban centres such as Melbourne, Berlin and Manchester are experiencing high growth, as these are mature and safe markets in which the fundamentals (supply-side shortages, population growth and the desire to be part of an ‘urban hub’) deliver the potential for long-term capital growth.
In the UK — a favourite for many South Africans — the urban centres to consider are Greater London (which has a forecasted average annual capital growth for property of 4.9% over the next five years) as well as Liverpool and Manchester (primed to benefit from the Northern Powerhouse initiative) and Birmingham (at the vanguard of the UK government’s policy of rebalancing the economy). In Australia, the focus is on Melbourne and Sydney, which are experiencing strong population growth and consequent undersupply issues. Both cities have seen an annual average rise in property prices in 2016 of between 11% and 13%.
Knowing the solution: Where to now?
Knowing the solution, however, does not simply provide you the answers. The following should be considered when entering the international property market:
- How do you identify the best property investments worldwide?
- Should you purchase international property in a company, a trust or is it better to own the property in your own name?
- What are the local tax regimes and double taxation agreements between the respective countries and the country in which you are tax resident?
- Transactional costs.
- Property cycles.
- How much time and effort can you spare to do the essential research and analysis required to successfully navigate the global property landscape?
A specialist in global property investment and management will be able to guide you through the complexities of an international property investment.
- Anthony Palmer, Director of Investments and Products, Carrick Wealth.