The United Kingdom offers a variety of real estate investment possibilities and many South Africans are climbing on the investment ladder with less than a R1 million.
Craig Illman, from UK-based Propwealth, highlights two investment styles that are popular with South Africans. “There are basically two types of investors; the cash buyer who wants higher yields than a bank would offer in the UK and the buyer who wants a UK mortgage to leverage their cash to gain both yield and, ultimately, capital growth.”
He says 90% of South Africans who have invested over the past 9 years utilise their R1 million annual allowances.
“These investors take a long-term outlook on these properties, as the returns have been very rewarding over the past decade,” says Illman. “Furthermore, they focus on a combination of rand hedge, cash flow and capital growth.”
Mortgaged holiday let properties
With the popularity of holiday lets, via portals like Airbnb and Booking.com, there is a trend for investors to change to this style of buy-to-let property. Many standard residential apartments are achieving higher yields in developing tourism markets than long-term rentals and, as the entire development is geared for tourism, it is run like a fully managed and marketed hotel.
What makes this even more advantageous to the purchaser is the owners use their apartments, they can be mortgaged, plus the flats may also be let out on a normal monthly basis.
A typical tourism-focused city offering this type of investment is. It now ranks as the fourth most visited city by tourists in the UK, with the nation’s capital cities, London and Edinburgh taking the top two positions.
Cash property investments
This is a popular option for those who don’t want mortgages, and who are perhaps more debt-averse. These investors are looking for return on cash via rentals as opposed to cash in the bank.
Long-term capital growth is also an important criteria for them. The affordability of these properties, starting at around £46 000 with good yields, makes them a very attractive option for cash buyers, says Illman.
“As an investor, it is wise to focus on ‘blue-collar’ working areas that are undergoing regeneration when one looks at normal buy-to-let with long-term residential leases,” he says, and cities like, Leeds and Manchester offer excellent returns in the medium term.
“These properties are below the mortgage level for offshore investors so they need to be purchased with available funds,” he explains. “However, coupled with an exposure to holiday let properties, a balanced portfolio is achievable and can prove very lucrative.”
Many investors also look at a so-called ‘generational investing portfolio’ in a stable property market and built up over time. This is created for a 15 to 25 year outlook either for their children, or their own personal retirement cash flow in years to come.
Market fundamentals, like fewer property buyers, a growing population in the UK, and the first-time buyer age edging towards 36 by 2025, means more tenants in the market as this supply base develops, says Illman.
“Historically UK property doubles in value every 8 to 12 years, so this trend could be expected going forward, especially in regeneration areas.
“Coupled with net rental returns between 6% and 10%, this adds up to a very stable investment option.”
Illman believes the outlook for a landlord in either tourism or residential property, or both, has a very strong future.