Is it best to buy an investment property in South Africa or abroad, and when is a good time to take the leap?

*This content is sponsored by Hurst & Wills

We asked international property expert and founder of Hurst & Wills, Lisa Bathurst, to do a comparison between buying an apartment in South Africa versus one in the UK and give us some insight into when the best time would be to buy.

“To do a like-for-like comparison, I have chosen to look at student accommodation. This asset class is an affordable investment that provides high yields,” says Bathurst. “In the UK, it is the most resilient real estate asset class and has outperformed most other property types even through the 2008 recession. The cost of a purpose built student accommodation (PBSA) unit in the South African university town of Stellenbosch is similar the price of one in a Northern UK city, like Manchester, Newcastle under Lyme or Nottingham,” she says.

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So, which is the better option? (See the comparison in Table 1). “The main differences are that South African options do not come with guarantees,” says Bathurst. “The UK also has the advantage of being a significantly stronger economy with a stable governance and credible legal system, despite Brexit,” she says.

“Hurst & Wills’ UK student accommodation units are fully managed, so completely hands-off from tenant finding and management to all the maintenance,” she says. “The units are fully furnished, including a TV, fully maintained and redecorated every year. Most importantly, they come with guaranteed yields of 7.5% NET, inclusive of service charges, maintenance and tenant costs,” she says. “This guarantee is not something you will find in South Africa, and it comes with the benefits of being hands-off.

“Being an independent company we can choose which developers we want to work with, we’re not tied to one developer,” says Bathurst. “So, we only work with a handful of developers who have a good track record and have earned our trust. We also regularly visit developments we sell to check on progress.

“Recently one of our partners, Alliance, completed the Laceworks student development in Nottingham. The development was fully sold out and is now fully constructed on time with 100% occupancy. Our clients are already receiving their guaranteed returns as promised,” she says. “These trusted partners are currently working on their latest luxury student development, The Met, in Newcastle under Lyme. Properties there are available from £73,500, with assured returns of 7.5% for 5 years and 4% interest being paid on deposited funds between exchange and completion,” she says.

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“Another benefit of investing in the UK is the currency play. Many economists believe that because of Brexit the pound is currently undervalued, some say by as much as 20%. This means that purchasing in GBP now, may well yield an additional return when the currency regains its value,” she says.

“When buying investment property here or abroad, it is essential to do proper due diligence,” says Bathurst. “There is a lot of rubbish on the market, I suggest investors use an independent company, like Hurst & Wills, to make sure that they are not caught out.”

Bathurst also made the comparison between a development in Manchester’s prime central area, called Uptown, versus a new development in Melrose Arch, also a prime location, in Johannesburg. “Residential property is more affordable in SA and the rental yields are similar when looking at the NET pricing,” she says. (See the comparison in Table 2). “Here, the most important difference is that you can borrow in UK at 3%, compared to the 10%+ bond costs on offer in SA. There is also the UK’s stable and strong economy and the probable undervalue of the pound to consider,” she says.

So, when is a good time to take the plunge? There is so much uncertainty on a global level with Brexit, the fluctuating rand, local political instability and South Africa’s financial outlook recently cut to negative, that many people think it’s best to sit tight, says Bathurst, but this is not the best option.

“We have seen, first hand, the cost of making the decision to wait,” says Bathurst. “One client was due to purchase two UK student accommodations in July when the rand rate was R17.53 to the GBP, making the price per unit R1 293 750. He decided to wait for a better exchange rate, but today the rand rate is R19.53. The purchase price has now increased – in rand terms – to R1 464 750, which is R171,000 more per unit and a total extra cost of R342,000,” she says. “In another case, a client has been waiting for 12 months to see what happens with Brexit before committing to a one-bedroom apartment in Manchester. She is still waiting while last year alone this UK city saw a 16% growth and property prices have increased to reflect this,” says Bathurst.

“Waiting too long to divest SA assets is another common situation. Unfortunately, South African property is in negative growth in real terms when you take inflation into account, so your rand-priced property decreases as your offshore property price increases,” she says.