Millennials are making their mark on the South African property market. According to statistics from Comcorp South Africa, they have made up the lion’s share of secured home loan applications over the past two years. So what are the other investment opportunities for people settling into their peak spending years? Megan Copley, director of International Real Estate, said anyone with a bit of spare cash should seriously consider investing in overseas property. Copley has spent a considerable number of years working in the UK and European property markets and has given BizNews advice on which towns investors should consider. She said the overriding factor in an overseas property investment should be confidence in the country’s property market and not falling in love with Victorian charm. –Linda van Tilburg
There are opportunities for young investors in overseas real estate
Sable has just launched a real estate investment team. The idea is to help South Africans invest in offshore real estate, to migrate some of their wealth if they choose to do so. One of my great passions is helping people who are younger than what your typical investor is perceived to be. So, those in their 20s and 30s who are looking to generate their wealth now. I would like to help them do that through offshore ownership. I’m passionate about it and I understand it. This is a project I can take on with any young investor who needs help along this journey.
The UK has 87 types of home loans and interest rates are lower
When I was younger I always thought only parents could invest, but really, if you’re looking to potentially buy your first home or have a little extra money that you put into another investment for the retirement. I would say anyone with a spare R1m or R2m should consider overseas property investments. There are real estate markets in the UK, for example, major UK cities and outlying towns where one can buy property for just R2 million and take out a mortgage overseas because believe- Whether or not some South Africans can get mortgages in the UK. There are many lenders. There are 87 types of loans available and the interest rates are significantly lower than what you will be used to in South Africa. That’s just a little about it. You would have to talk to us for a while to understand their personal situation, but it is an investment available to someone with R1m or R2m.
Look outside of London for UK property investments
At the moment, for an overseas investor, my advice is always to look outside of London. Sure, London is one of the most expensive cities in the world, but the UK has a lot of bustling hubs where there are big companies, big names, PWC headquarters, Google headquarters where you can buy a property and find a fantastic professional tenant. There are many factors at play in the UK that support a booming property market and it is an ideal location for investors. At the moment we find that most of the properties we sell are in Birmingham and Manchester, or just outside. These are great places because there is a demand for housing and a demand for tenants for residential properties.
New properties [are] ideal for an investor as it presents less hassle. The developer is responsible for a guarantee on the construction. All your appliances, etc., will be brand new. So from a practical point of view you can expect less hassle and if you were to deposit between £50,000 and £100,000 – around R1m to R2m, we hope to find you an asset worth around £175,000 to around £350,000. And it can range from a studio to a two-bedroom or even three-bedroom apartment. It’s more like a two bedroom and in a new development in these areas you might be aiming for around 4-6% rental yield. What is really interesting, however, is that on this purchase you will pay a deposit, take out a mortgage and renting the property will cover the interest on the mortgage, so the property does not cost any money the months. But with historic capital appreciation in the UK, the value of this asset [should grow] each year somewhere between 5% and 8%. It’s the value of the entire asset, not just the £50-100,000 deposit. This is really the advantage of investing abroad.
It’s all about trust in a foreign real estate market
The British market is interesting because it has a lot of foreign investment. In my opinion, people have so much faith in the UK, and it’s all about trust. How you buy and why you buy shows how confident you are about a market and its stability, and the UK is stable. Even though there have been declines in property prices, there has been an overall increase in these prices year over year. Although there was a period during the recession where house prices fell, they are again rising from those previous crash prices. So it’s a matter of trust. During Covid-19, when there was a bit more volatility in the market than we had seen before, the UK government encouraged market buying by removing a stamp duty*. The South African equivalent is a transfer tax. This allows buyers to take all the money they had saved up to buy a property up to £500,000; the upper limit of the abolition of the tax. Young professionals who had saved enough money for a filing but could not pay the transfer tax did not have to pay the transfer tax. People moved and they bought. There was buzz again and confidence in the market and action and movement. This leads to price increases. Again, there were no declines in certain segments of the market. In what we call the ultra high net worth market over £5m there has been a slight drop but certainly not below £1m which is where our investor market is primarily .
* The UK has since reintroduced stamp duty.
In Europe, Portugal and Germany are good investment destinations
There are so many options in Europe. I have spent the last five years working between France and London and I really understand this market. Right now, due to many factors – travel, communities – I find that South Africans are attracted to places where they can find a community of other South Africans. Then there are the language barriers. I would say a good place to invest right now is Portugal; an investor or buyer can purchase a golden visa or the path to a golden visa. This is different; you can actually invest in real estate regardless of the EU nationality passport option. Real estate in Portugal is a haven of peace, in my opinion. In other places, Germany is a great place to invest in the cities of Frankfurt and Berlin. They’ve all seen big house price increases, fantastic demand from tenants again. Between Portugal and Germany, these are also major office hubs for tech workers who can work remotely. These are cool towns with good demand for tenants, which is what any investor or landlord wants to hear when buying a property overseas.
Diversify a real estate portfolio with overseas assets to mitigate local risks
I think it’s a question of diversification. Unfortunately, in South Africa, our interest rates are quite high if lending, which can hurt investment. I think it is important that someone does what they need to do for their primary residence when it comes to buying property and living in South Africa, but there are many reasons to invest abroad. One is hard currency in Europe and Britain. It shows lower volatility than the rand. So it’s a safe haven for a currency, so you can develop an investment portfolio somewhere like that and convert to rands in the long run. Confidence in the market, which we were talking about earlier, is important. Real estate prices are increasing every year. I specialize in real estate investing, but any time you consider an investment you need to consider inflation, interest rates, capital appreciation and the currency in which all your assets are based and all those in the UK present a very good investment. Case.
Established real estate markets take care of the worries of real estate investors
Another point I want to mention is that when considering buying property you should always think practically of property in the UK or established markets like that. Unemployment is low, the property management market is also very established. Due to the low unemployment rate, you have a good chance of getting a good professional tenant, and you can count on a very competitive rental market and a competitive management market. You will be able to find someone there to take care of the property. So all post-investment worries, apart from the financial reasons for doing so, are taken care of in your more established markets like the UK, Germany and Portugal.
Don’t fall in love with the charm of the old, invest in new developments overseas
There are risks in everything you do and our job at Sable, and my job as a property advisor in this case, is to mitigate those risks as much as possible. [Look for] a good developer with a good brand, track record, and something new so you don’t have too much hassle.
I suggest you go to an expert who understands the markets. You need good advice. You have to trust anyone you work with, and Sable is a brand synonymous with integrity. It’s a great deal, and we can take care of anyone and provide end-to-end service. We have foreign exchange teams, tax advisers and accountants. We have a wealth management team and if someone is looking to build a portfolio we will walk them through the property purchase, help them find something that is suitable, something that matches the risk profile of that buyer and what they are looking to get from that investment. It’s really about the right people who have experience in the different buying avenues and making sure you’re taken care of as a buyer in the future; that you know what your obligations are; and, from a tax perspective – both in the country where you are buying and in the country where you are tax resident – what you need to understand when it comes to long-term ownership.
We would do all of that; that would be our role as advisers in the process. It is not a difficult process. We also have an in-house mortgage team and will maintain a service of intent to ensure the buyer is knowledgeable and ready.
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