Spokespeople for the major estate agencies in South Africa regularly find themselves asked one question, says Bill Rawson, Chairman of the Rawson Property Group – and that question is, “Should I now be considering buying property overseas?” Usually, said Rawson, the question relates to residential property in the UK and has been triggered by the SA Reserve Bank now allowing SA citizens to invest up to R4 million per annum offshore.
“Those who keep track of property prices will be aware that British property – with the very obvious exception of central London – is often now being sold at prices that are 25% to 30% below their 2007 peaks. Attractive often, is historic two or three bedroom homes in the remoter parts of the British Isles that can on occasion be bought for R2,5 million to R5 million. If, therefore, you are worried about South Africa’s ability to ride out political change and to maintain a stable economy, it might seem good sense to be examining UK properties with a view to purchase.”
So far, so good. However, said Rawson, as he has pointed out on occasions previously, the rental returns on UK residential properties are low, even allowing for the fact that the inflation rate is also low: they average out between 3% and 4%. Furthermore, managing agents’ costs are higher than in South Africa. In addition, when a property is so far away, it is always very difficult to ensure that the agent is performing, the tenants are looking after the premises and that you, as the landlord, are getting a fair deal.
“Sadly,” said Rawson, “there have been numerous cases where South African investors have lost heavily, e.g. losing a whole year’s rent when investing in UK property, simply because they were not there to check up on what was going on.”
Is there any alternative?
“I still believe,” said Rawson, “that, unless you are a proven Securities Exchange analyst with an ability well above average to read the markets, your investment portfolio should have 35% of its assets in property. It is sometimes not fully appreciated that in volatile economies (as we have recently seen in Zimbabwe) when conditions are, at least for a time, completely chaotic, property is often a safe haven and retains its value when other asset classes are losing theirs. (Knight Frank have recently reported good returns on Harare office and residential space.)
In the circumstances, said Rawson, he would advise investors thinking of going overseas to take a look at the excellent performers of South African property in recent years and at the listed property funds in particular.
“The risks associated with going into offshore property are so high that unless you are a born risk taker or unless you can go to the venue and make a thorough investigation, I regret to say that I would normally definitely advise against it. Stick to properties that you can see and check up on – and then, above all, find and stick to good estate agents.”
