Now is a good time to invest in property off offshore

Good opportunities are currently available for South African investors to invest in property abroad with prices materially down from 18 months ago and property markets in countries such as the UK currently at an inflection point. This was the consensus reached by a group of local and international property experts who debated a range of topics relating to offshore property investing at seminars hosted by Sanlam Private Investments (SPI), GAS Properties and Finweek in Johannesburg and Cape Town last week.

Daniël Kriel, CEO of SPI, said that investors should consider including an offshore property element in their diversified portfolio. “A number of factors are working together to make this an ideal time to look at this asset class. The worldwide downturn is starting to correct and the likelihood of hyper-inflation will be very good news for property buyers.

“Of course, we are not out of the woods, investors should stay cautious. Liquidity and accessing finance, continued deflation and the threat of a ‘double-dip’ shaped economic recovery are all risks that point to a continued bumpy road ahead. In addition, residential property is looking more attractive than commercial currently.”

Another common theme among property panelists was the need for patience. “There are likely to be good opportunities for the next 12 to 18 months so there is no huge urgency in this regard. But it is critical that investors take a medium to long term view on their investment because returns won’t come overnight,” said Kriel.

Debating the merits of developed versus emerging markets, panelists reached agreement that a thorough knowledge of the country in which an investor proposes buying is essential. “Unfamiliar banking and legal systems as well as cultural and language differences are all very hard to negotiate successfully. Investors need to work with a reputable company that really understands the market and they need to conduct thorough research into the region before making a commitment.”

Alwyn van der Merwe, director of investments at SPI, said that 18 months ago international property was expensive but this has changed now. “If we listen to the fundamental principle of investing which says you should buy when things are cheap, including offshore property as a building block in a portfolio definitely makes good sense for investors at the moment.”

He said that two fundamental shifts had taken place in offshore investing. “There has been a shift in focus from property offering capital growth to its primary return coming from income. In addition, there has been a move towards acquiring property in prime areas.”

Key considerations for investors looking to purchase offshore are location, purchase price, rental growth, financing, exit yield, interest rates and inflation. This was according to panellist Lukas Nakos of MAC Property Advisors, a UK property investment company.

After rigorous debates, the panelists agreed that the UK offered some of the best value for SA investors. Mariana Tolken-Otto of GAS Properties said the UK was past its inflection point and therefore looking a good prospect. “The downward movement in valuations has stopped and the market is starting a slow, if bumpy, road to recovery. The latest figures from Rightmove (the UK’s leading property website) have shown a 2.8% capital growth for London for October which supports the case that a recovery is well underway.

“The UK is one of the most transparent markets in the world and its geographical position and political stability are advantages. Of course, the recession and rising powers in the East mean that the UK must evolve and move forward in order to remain competitive, but through the Olympics and other initiatives, it seems to be on the right track,” she said.

“The location and type of UK property is vital right now. Banks are lending to quality clients and for quality properties only. The most sought after properties (in London) are around the city centre.”

Seminar panelists also debated the comparative strengths of other countries. “We found that there was value to be had Spain, Germany, Switzerland, Australia and the US but none of these markets emerged as offering significantly more value than the UK. A number of the experts speaking had explored other locations – such as the old Eastern Block countries and India, but found that lack of true local knowledge meant unnecessarily high risks would need to be taken,” said Tolken-Otto.

Dubai, previously the darling of South African offshore investing, had practically dried up. Lloyds Bank’s Hassim Coleman said that the bank had written the majority of its business in 2008 in Dubai properties, but so far in 2009, had not done one deal there. In addition, he said that 57 percent of the bank’s overseas clients currently buy in the UK.

The comprehensive seminar also examined the legal and tax implications of investing in property abroad and the structuring of finance of property deals.