South Africans have always liked property as an asset class. It is a tangible asset, often less volatile than stocks and it provides a place to live. But with more challenges at home, investors are looking further abroad for investment returns, and potentially a future exit strategy.
Although offshore property funds and listed real estate pose a lucrative investment case, experts say bricks and mortar assets should not be discarded. Also, adding to the appeal is the fact that average house price growth in South Africa has not kept up with inflation for several years now, and according to Lighthouse Property is likely to remain subdued.
South Africans don’t even have to veer too far from home to find buying opportunities. Since the Mauritian government tweaked its real-estate-investment legislation recently, South African property buyers have flocked to the island’s shores. The law now allows foreigners to qualify for residency if they buy property on the island for more than $500,000 (about R7.15-million).
But foreigners aren’t just buying into Mauritius for the ocean view. The policymakers have made a significant effort to create an attractive environment for foreign direct investment. The country’s business and finance practices are considered one of the most competitive in the world.
According to a report focusing on property markets across Africa published by Seeff Properties, Namibia and Botswana are rising in the ranks and are standout investment opportunities.
Further abroad, the latest data on Eurozone property shows that Malta is another favourite destination for offshore property investment for South Africans. The country has had great success with its real estate for citizenship programme, the first proven Eurozone destination where a property purchase comes with a passport, unlike Portugal for example, where only the residency is on offer.
On Property24, Lance Cohen, a director with Seeff Atlantic Seaboard who markets Malta property, says:
“The Malta property market offers excellent prospects and you can find property from just R3-million to R4-million — far less than what you would pay for a holiday apartment on the Atlantic Seaboard.”
But many other pockets of value in Europe exist, and they are more affordable than investors think.
“Locals think property overseas is not for them because studios in London and Paris cost R20-million and they have to pay cash,” says Ian Edwards, partner and Africa regional manager of Austen Morris Associates, a global, independent wealth manager.
“The truth is property purchases can be financed and monthly rental income could cover the mortgage payment and related running costs.”
He says by buying into the right areas, where demand for accommodation is high, landlords could be cash flow positive from day one.
“In response to growing demand from our clients for overseas property investment, we have identified several international cities with excellent investment potential with apartments in the €200,000 (R3.3-million) to €400,000 (R6.6-million) price bracket which can typically be bought using a 50% bond,” he says.
Ideal destinations include:
Manchester — urban land values are up over 20% in the past year and house inflation stands at about 8%. Rental income is forecast to rise by 22% by 2022.
Birmingham — with a booming population, massive infrastructure spend and a sound local economy PwC has ranked it as the top location for UK property investment four years running.
Berlin — house prices have grown at 6% on average since 2006, and its economy is booming.
Lisbon — Property prices are supported by a growing middle class, with the added appeal of its residency programme.
Edwards says these cities are showing the wide range of investment, country, price and lifestyle options available to South Africans. He warns, however, that it is important to work with a trusted adviser to make sure of a secure and sensible investment.
He also warns against the wealth of fraudsters who employ hard-sell, boiler-room tactics, which promise well-priced property to South Africans desperate for offshore investments.
He says in the past few months he has assisted people who have been duped into buying property in what is nothing more than swampland in Miami, land without planning permission (nothing can be legally built) in the UK as well as council housing (social housing for those on welfare) with nightmare tenants refusing to pay rent, also in the UK.