Advice and Opinion

Decision to invest in overseas property involves more than simply financial returns for South Africans

According to property investment company IP Global, which today released its Global Real Estate Outlook for Quarter 2 of 2015, there are a handful of cities in the UK, Australia, the EU and beyond, which all present prime property investment opportunities for South African investors over and above London, traditionally seen as a ‘safe haven’ market.

IP Global Director for Africa George Radford said the decision for many South African’s to invest in the global property market was not always driven purely by the expectation of good returns. For many South Africans—especially high net worth individuals—purchasing offshore property is also seen as an opportunity to diversify their investment portfolio into core safe haven markets with more stable political and economic landscapes, as well as getting exposure to stronger and less volatile currencies. In addition to this, other key investment drivers are often retirement and succession planning, children studying abroad, as well as potentially creating the option for relocation in the future.

In 2014, around 90% of IP Global’s South African-based clients invested in the UK and the rest invested in Australia. The UK, particularly London, remains a leading global property investment market, especially following the Conservative Party’s recent election victory. In addition to the investment fundamentals that make the UK attractive to global investors, South Africans also have historic links with the UK, which makes it even more compelling for property investment. Mr Radford said they were also seeing similar trends in Australia, where properties are not always purely bought on their investment merits, but are also linked to immigration patterns.

Property prices in Greater London increased by 12% in the last year up to January 2015. In Manchester prices were up 5.4% in the 12 months to March 2015, while Manchester city centre apartment prices rose 6.3% over the same period. This trend is set to continue with prices expected to grow in Manchester by 26% between now and 2019. This clearly shows that although international investors continue to favour London, there are great investment opportunities outside of London, in places like Manchester, as well as Edinburgh, which both offer better value and often higher rental yields than London property.

Mr Radford said that while the UK continued to provide stable returns and a familiar haven for South African investors, they should also consider looking at other European cities such as Berlin and Dublin, and pay more attention to Australia, in particular Brisbane, and Melbourne’s inner suburbs, which are seen as being undervalued when compared to the likes of Sydney.

Berlin makes sound investment sense. “Berlin’s rental market is a key factor supporting the city’s investment case,” said Mr Radford. “Just 14% – 16% of the city’s residents are home owners, making it very much a landlord’s market.”

For South African buyers, Australia’s relative proximity makes it a convenient and familiar destination for investment. Mr Radford said strong investment continued to drive real estate growth in Brisbane.

“Private and public investment continues to pour into Brisbane, which stands to benefit from the Queensland government’s AUD134-billion infrastructure investment spend over the next 16 years,” he said. “This is driving the excellent performance of the city’s real estate markets, with prices recording 12 consecutive quarters of growth since early 2012.”

The growth has seen Brisbane’s median unit price rise 3.6% in the year to December 2014. A shortage of housing stock and a vacancy rate still sitting tight at just 2.1%, has created a strong rental market generating some of the highest yields seen in Australia—on average 5.4% per annum, as of March 2015.

Mr Radford also pointed out that the South African rand would most probably continue to lose ground, reflecting the malaise impacting emerging market currencies. “If this is the case, offshore investments that generate income in Sterling, Euros, Australian or US Dollars will be attractive to South Africans,” he said. “Provided they are armed with some solid research, and are working with the right partner, then offshore property investments will continue to make a lot of sense and form an essential part of sensible investment planning.”