The world is changing fast and to keep up you need local knowledge with global context.
*This content is brought to you by One Touch Property
Whilst Sandton itself is expensive for young professionals to rent property in, many move to the suburbs within easy reach of the city centre. The suburbs are often popular with investors too, as they are affordable and accessible, thereby ensuring high occupancy rates. Similarly, areas outside of prime Manchester and Birmingham city centre spots also do well. Between 2002 and 2015, the population in Birmingham’s city centre has soared by 163% and Manchester by 149%.
Areas bordering on prime central locations are preferred as everything is still easy to access, yet property is generally more affordable. Digbeth is a district in central Birmingham, yet average property prices are R4.53m vs R4.87m for Birmingham city centre.
Purchase prices and what it gets you
Paulshof is a suburb of Sandton which has a young vibe and attracts a considerable number of young professionals. It offers amenities such as places of worship, shopping centres and infrastructure which means that areas such as Bryanston, Fourways, Midrand and Sandton are easy to get to.
Baraca, development – Paulshof
Property Type: New Build, 100m2, 2-Bed 2 Bath
Purchase Price: R1,695,000
See table below
Recently built (2016) three-bedroom resale properties in the same area, are being offered at reduced prices of R1,695,000 in 138 Holkam Road, Paulshof, Sandton and similar two beds are being sold for R1,450,000. This shows that properties are being discounted to be sold.
FNB economic data shows that low house price growth of only 3.8% year on year to Nov 2019. House prices are not keeping up with consumer price inflation currently at 5.1% inflation which means that homeowners are worse off in real terms each year. Combine that with bond rates are in the region of 9%, it is difficult to make money from property in Sandton.
When you compare the returns of Sandton Met Area properties with suburbs of Manchester and Birmingham you will notice that the net returns and cash flow make better investment returns.
Although the net rental yield income is only 4.7% in Greater Manchester compared with 3% Net in Sandton Met Area. There is a net positive cash flow after mortgage expenses. This can be attributed to interest-only mortgages.
Drivers of rental growth – population growth and jobs
With regards to population growth, Cushman & Wakefield estimate that Manchester’s population will swell by 56,000 by 2034. Between 2018 and 2028 Birmingham’s population is estimated to increase by 7.2% (81,400) according to Birmingham city council. These statistics have a positive impact on rental yields.
Manchester investment property boasts some of the best yields in the country at 5.5%, and its population has grown from 539,600 people in 2015 to 572,000 people in 2018. Birmingham’s population is also growing at a faster rate than the England and Wales average at 12.5% between 2002 and 2018. Rental yields in Birmingham are also above the UK average, standing at 4.61%.
Due to Brexit, many businesses are looking for more cost-effective office space and many businesses are moving outside of London to attract talent. The lower cost of living and office space makes cities such as Birmingham and Manchester attractive. In London, average office space rental costs come in at £55.34/sq.ft, compared to £32/sq.ft in Manchester and £31.50/sq.ft in Birmingham.
From a business perspective, it’s clear which city, especially those struggling due to the Brexit climate, would choose to have an office. Not only that, but many young people are moving away from London due to the living costs. In Manchester and Birmingham, the cost of living is much lower. This means that businesses have greater access to a young professional workforce, and young professionals have great career opportunities – both complement one another.
Birmingham and Manchester rental growth dynamics – jobs and growing population. Affordable living costs making them genuine alternatives to London, especially as some finance jobs are being moved from London to Frankfurt due to Brexit plans. Versus stagnating economy in Johannesburg.
In Manchester, rental prices are growing by 5.76% annually and over the past five years have increased by 38%. Rental prices are expected to increase by 4% in 2020 and 4.5% in 2021.
In Birmingham, Knight Frank anticipates that house prices will rise by 12.5% by 2022. Manchester’s property prices are also expected to rise above the national average and have already increased by 34% in the past three years. These growth figures contrast heavily with Johannesburg.
Our property sourcing strategy here at One Touch is to target areas that are undergoing regeneration and infrastructure changes. These include more public transport links, such as the development of HS2 which will connect London to other strategic cities and make it quicker and easier to move.
We have identified cities such as Birmingham as good places to invest in. Areas such as Digbeth in Birmingham have experienced a huge amount of regeneration with the creation 250,000 sq. ft of Grade A office accommodation for instance: The Beorma Quarter.
The Custard Factory is a former factory which has been redeveloped and now houses 101 small – medium sized businesses. The development reflects the ambience of the area, which has attracted an influx of young creatives due to its closeness to the city centre.
One investment opportunity that the One Touch property sourcing team has identified is Westminster Works. A buy-to-let property investment in Birmingham comprised of 220 one-and-two-bedroom contemporary apartments with prices starting from R3.35m. Apartments will be furnished with all high-spec mod cons including an online tenant portal and exclusive Sky Lounge access.
How they compare:
Not only are the rental yields in the greater Sandton Metropolitan district low at 3%, but property prices in South Africa do not exactly inspire confidence in the market either. From 2008 – 2018 real house prices after inflation had dropped by around 4.8%.
During Q1 of 2019 it looked like things were picking up a bit as nominal house prices had increased by 3.96%, however once prices were adjusted for inflation, it turns out they had declined again by 0.51%. Whilst property prices in South Africa tend to be on a downward trajectory, rental yield in the second and third most populated cities in the UK are steadily increasing along with property prices, irrespective of Brexit.
If you would like to find out more about these or other UK property investments please do book an appointment with one of our experienced consultants who will be in South Africa from the 5th February – 14th February in Cape Town, Durban and Johannesburg.
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.