South African investors are showing unprecedented interest in buying property offshore to diversify the risk profile of their portfolios. However, making decisions without the correct advice can sometimes place investors on the back foot.
“While choosing a property investment based on emotions — picking your favourite holiday city for example — may seem like a sensible decision, such investments could carry increased risks and may not provide strong returns in the future. It is therefore essential that investors rely on the experience and research insights that a property investment firm may have in order to make sound decisions,” shares George Radford, Africa head of global property investment firm, IP Global.
“It is quite onerous to accumulate all the information, including demographic trends, macroeconomic influences, growth projections, purchase process supply and demand data, as well as transactional and operational costs,” he says. Given current levels of economic volatility and global uncertainty, there are a lot more variables to consider prior to making any property investment, meaning you need to do a great deal more research.
“Environmental nuances and cost implications in foreign markets are only understood following years of research and experience,” says Radford.
Many property investors feel they have the answers at their fingertips in an increasingly online world. But it can be risk to rely solely on research online. The number of companies trying to sell property abroad has increased threefold in the last few years and many of the claims of high guaranteed returns are highly unlikely.
“However, selecting the best investment for your strategy is just the beginning,” he says. “Once you have undertaken to invest in global property, you still have to manage the property, source and manage tenants, and keep a handle on ongoing costs and possible divestment over time.”
“Our clients come to us because of the challenges and risks of investing in property and because we have done extensive due diligence and are well versed in legal and tax structures and requirements for getting a mortgage,” he shares. “They rely on our extensive research, understanding of the markets and expertise in multiple areas including property tax legislation and regulations, mortgages and bond and transfer fees”.
An independent study by Savills identified indicative values of IP Global developments launched between 2009 and 2013, showing an average total return of 29.5% leveraged and 11.4% unleveraged across all projects.
Over this time period, IP Global’s 45 projects in London proved to be safe haven investments on the back of a strong and stable economy, increasing populations and systemic housing supply shortfalls.
Germany remains a promising investment opportunity and Berlin was named top market for real estate investment by PwC and the Urban Institute in 2016 and 2017. IP Global has four projects in its Berlin portfolio which have shown a 16.1% unleveraged and 35.1% leveraged total capital growth since it launched its first development in 2014.