If you had R1 million to invest offshore in UK property how would you do it? It can be a minefield out there as distance-investing needs nerves of steel and focus.
“For those investors who are concerned about their R1 million investment, the protection here is that investors are buying low, with strong tenant demand and are already getting above average returns in year one,” says Illman.Recently, the volatility of the rand has led many people to seek offshore investments, which offer stability and foreign currency returns. The growing population, need for housing and strong property laws in the United Kingdom has allowed many South Africans to enjoy good returns.
Experienced South African property investors Anthony Doyle and Craig Illman, both directors of UK based Propwealth, sought out high yielding property investments in Britain over 6 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,” says Doyle. “We hired and fired, but finally got there through trial and error. It was exciting to discover that the North West of the UK offered us immense opportunities.”
Their focus is Liverpool as it is a city that offers high tenant demand and plenty of employment. It is part of the now aptly named “ Powerhouse of the North” which consists of Liverpool, Birmingham, Manchester and Leeds. 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 its early days and many UK based investors are now focusing on Liverpool with its high yields and affordable entry-level prices.
Furthermore, the UK government in conjunction with private business is unrolling a second regeneration area of the northwest coastline of Liverpool, which will continue for some 20 years, creating new jobs and services.
What to look out for before investing your R 1 million:
1. Have your team set up. This includes solicitors, UK property accountants, a UK bank account, and SARB clearance, if needed. You can also look at your annual discretionary allowance as a funding option.
2. Find out where the regeneration areas are. A city like Liverpool, since being awarded the European City of Culture Liverpool for 2008, has spent over £5 billion on regeneration.
3. Narrow down the neighbourhoods. The best areas in which to invest are those in established parts but must also be up and coming. Areas with Victorian and Edwardian properties are good as the buildings are sound and have character.
4. Check out the sources of employment. The more affordable lifestyle of Liverpool and lower commercial rents are attracting many large companies to relocate to this area.
5. Investigate the tenant base. 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.
6. Buy in areas of historic interest. You will find the buildings are solid and will show any structural issues unlike new builds. Also tenants are attracted to better looking buildings as they offer living spaces like higher ceilings, better natural light and often have gardens.
7. Make sure that your investment is fully managed. It is imperative that you have a rental managing team who you can trust; they should be offering services including screening potential tenants, administration, and management 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 to the best way to structure things, as the UK and South Africa have reciprocal tax agreements and you will have to declare your earnings from rentals.
Propwealth has teamed up with reputable Liverpool property developers to offer a beginning to end investing. Their business model is simple – they buy on auction, renovate the flats to a high standard and pass this on to South African investors, with net returns aimed at 7% to 8% in sterling.
“In this way we control the yields rather than being dictated to by what the market prices are,” says Illman. “Our goal is to offer our investors solid properties, good sterling returns and a full management team that sources and looks after tenants,” he says. “The company now manages over 120 properties in the country.”
As many of the properties are below the mortgages’ threshold for offshore investors, people are acquiring these for cash and waiting until the capital growth clicks in and the property values rise to the current mortgaging level of £80 000, says Illman. “Under current offerings, banks will lend a 60% loan-to-value on this price subject to individual status qualification.”
So effectively, he says if you were in to invest R1 million at the average rate of exchange of 20:1 then your net sterling cash return would be close to R6 000 per month, excluding any capital growth or potential exchange rate fluctuations. The return is calculated after all monthly running costs including management fees, and levies.
As with many investment vehicles, property needs to be studied over a 5-7 year period. Historically UK property doubles in value every 7-10 years, so in real terms UK buy-to-let property as an offshore option makes plenty of sense, says Illman.
“For those investors who are concerned about their R1 million investment, the protection here is that investors are buying low, with strong tenant demand, and are already getting above average returns in year one.”
Rentals tend to go up with average salary increases year-on-year but can be heavily influenced by supply and demand issues. Thankfully the UK is entering a period of a massive lack of quality rental stock, which means increased rents for landlords, he says.
A typical R1 million investment is the recent James House launched by Propwealth last month. Consisting of 12 studio and one bed flats this property is in a leafy middle class area of Liverpool, is fully renovated and has existing tenants (some of whom have been tenants for 9 years). “The investors will be getting net returns of approximately 7% and potential capital growth is strong in this area. Flats are selling from £50 950,” says Illman.
Craig and Anthony will be in Cape Town on 17
March, Durban 22 March and Johannesburg 23 and 24 March. For more information, email
Propwealth or visit the website.
Print
