Property24 18 June 2020
The recent volatility of the Rand has led many people to seek offshore investments, which offer both stability and foreign currency returns.
Understandably, many South Africans either believe it is too expensive, or impossible to invest in property assets offshore.
As investing offshore can be daunting for many, the most important aspects are to understand the market, and to feel comfortable with the country of choice.
And with the Reserve Bank relaxing exchange control over the past few years, many individuals now have access to their discretionary allowances of R1-million or R2-million per couple. Furthermore, investors need to look at affordability, good yields and strong on-hand management.
South Africa property investors Anthony Doyle and Craig Illman, both directors of UK based Propwealth state the United Kingdom has remained a favourite option for some time, with its growing population, the great need for more housing, and its familiar property laws and regulations. "Added to this is the fact that many South Africans have enjoyed sizeable returns over the past few years. Now with many more investment opportunities post-Covid 19 emerging, the UK property market is set to be a favourite asset class once again.
Doyle and Illman sought out high yielding property investments in Britain over 12 years ago, in the height of the credit crunch. “It took us nearly 2 years to locate the right area in which to invest, trusted partners and the right returns. Over time we have made it as simple as possible to develop a property portfolio,” says Doyle. Illman highlights, “Our main focus includes Birmingham, Liverpool and Nottingham as these cities are part of the region called the Powerhouse of the North.”
The UK Government is heavily focused on investment in these regions and along with this has come many buy-to-let opportunities. The regeneration is still in early days and this region offers high yields and affordable entry-level prices. They personally follow an 8-point check list to simplify UK buying that ensures a solid investment portfolio over the medium to long term.
A step by step guide to make it easy to invest offshore:
1. Open an offshore bank account
This can be done via most of the South African banks that offer offshore banking facilities. You will need this account for payments off the property, plus for income receipts from rentals.
2. Have your team set up
This includes solicitors, UK property accountants, and SARB clearance, if required. Your annual discretionary allowance is exempted from this requirement. Also, if you are wanting a mortgage, get a pre-approval option set up through a specialist UK mortgage broker. UK lenders work on affordability and rental income as banks do in South Africa.
3. Find out where the regeneration cities are
A city like Liverpool, since being awarded the European City of Culture for 2008, has spent over £ 8 billion on regeneration. This ensures capital growth and tenant demand. Make sure there are strong transport links to major cities like London. People are working more remotely now.
4. Check out the sources of employment
The more affordable lifestyle of Liverpool and Birmingham, and lower commercial rents are attracting many large companies to relocate to this area, offering many job opportunities.
5. Investigate the tenant base and yield potential
In Liverpool, tenants are generally blue-collar workers like nurses, taxi drivers, teachers, and contract workers. These people generally don’t buy real estate but stay renting for years. A stable tenant is a great asset. Keep a focus on gross rentals of 7-10%.
6. Buy in established areas
You will find the older buildings, which have been renovated, are solid and will show any structural issues, unlike new builds. Also, tenants are attracted to buildings in established areas, as they offer living spaces like higher ceilings, better natural light and are mostly close to transport, parks and shops, offering a sense of community.
7. Make sure that your investment is fully managed
It is imperative that you have a rental management team who you can rely on; they should be offering services including screening potential tenants, administration, and rental of the property. One generally pays a set-up fee of one month’s rental and a 10% per month management fee.
8. Take into consideration your tax responsibilities before you invest
Check with your local accountant as how best to structure things as the UK and South Africa have reciprocal tax agreements. You will have to declare your earnings from rentals earned offshore. There are also other options like a UK limited company.
Investors can also expect rentals to increase over time. The UK is entering a period of a massive lack of quality rental stock, which means increased rents for landlords. Since 15 May 2020 there has been a 22% increase in rental demand according to the Rightmove property portal.
As with many asset classes, property returns need to be studied over a 6 to 8-year period. Historically UK property doubles in value every 10 years, so in real terms UK buy to let property as an offshore option makes plenty of sense.
Illman continues, “Effectively if you were in to invest R1-million in a studio flat in Liverpool, you can expect a net return of 6-7%, calculated after all monthly running costs, including management fees, and levies, but excluding any capital growth or potential exchange rate fluctuations.”
Typical R1-million to R2-million investment opportunities are the recent Mersey House at £30 000 for a studio room, with separate title, to a one bed in Hawthorne House in Liverpool for £59 000. Both developments are fully managed and are in Victorian properties consisting of 5 flats and 3 flats respectively. Investors will be aiming net returns of approximately 7% with potential capital growth in a strong area.