International property has become an increasingly enticing option for investors who seek consistent and predictable global income streams.
Many high net wealth South Africans are looking to hedge against the rand by preserving their wealth in first world currencies. And when it comes to sustainable growth and inflation-beating returns, property delivers a strong performance. Here are some reasons why investors who are looking for ways to future proof their wealth, lean towards putting their money into this stable asset class.
1. Externalising rands
A diversification strategy is the core of building offshore wealth – this ensures risk is spread by not placing all your assets in the same place and protects against local currency fluctuations and other global events that may impact your wealth. While many of us are still invested in South Africa and will continue to be, it makes sense to externalise a portion of your rands through offshore exposure. Although diversification can never fully rule out loss, it’s adds another layer of security to a portfolio.
2. Passive hard currency income
A proven passive income stream strategy, purchasing and renting out residential property is one of the biggest global wealth generators. “Investing in property in a country that operates in a hard currency is the perfect way to ensure a consistent and stable income, while increasing one’s nett wealth, especially for clients whose local currencies are volatile,” says Scott Irving, General Manager of Carrick Property. Property is not subject to dramatically shifting exchange rates, is tangible and pretty much hassle-free if you have the right rental agency on board. It’s also a means to independence as it can add significantly to a retirement income.
3. Security and stability
One of the key benefits of offshore investing is knowing your wealth is in a regulated and established market. “Property is considered safer and less volatile than other asset classes such as stocks and shares because it’s often less impacted by prevailing economic forces and political conditions,” says Irving. If you invest in real estate in a market like the UK, for example, there is the stability of an established investment environment, high levels of protection and good availability of mortgage financing, while the French property market is one of the most regulated housing markets in the world.
4. Historical returns
Offshore property is outperforming other products on the market and producing really good returns. “Depending on how you gear the property, you can borrow at 3–4% and get a 6 –8% yield on a new development in the UK,” says Irving. And if you’re buying off-plan, you’re buying at today’s value and only start paying for it once the development is complete. There is also potential for surrounding property prices to rise, so one benefits from capital appreciation on the property while it is being built resulting in clear returns.
5. Cost of funding
The ability to leverage property at very low financing costs, such as in the UK, is a big driver for African investors. “To be in a market where you can borrow money close to 0% is completely foreign to Africans, but once they consider it, they can see the how well the cash flow can work in their favour,” says Irving.
6. Leveraged returns
Being able to leverage your investment (borrowing money to buy the property instead of using all of your own capital) is one of the reasons that investing in property is so appealing. You can either purchase a property that costs more than what you have or you can spread your wealth across a few properties. Another advantage is the equity you can build over time – as the income from the property pays down the principal on your loan, you’ll be building equity that your tenants are paying for.
Ultimately, the key to success in an offshore real estate market is making the right decisions which means having an investment team that knows what they are doing and have feet on the ground in the country of investment.