Carrick Property speaks to Charles Norris of the RPA Group about why investing in offshore real estate is still the way to go.
Investing in property offshore is an attractive option for Africans for a number of reasons. Diversifying offshore helps hedge against your local currency; it allows access to foreign currency income on a rental property; and the low cost of financing is attractive and still relatively affordable compared to rates in African countries.
“One of the best ways to achieve your offshore investment goals is to invest in property in tier one economies,” says Charles Norris, Manager of the RPA Group SA. “Tier one economies offer a safe and sound political landscape, strong, underlying economies and high levels of protection for clients.”
The global economic growth has bounced back pretty quickly post Covid-19 and global real estate prices have increased significantly over the last 12 to 18 months.
“One of the biggest economic challenges facing the world currently is inflation, which is one of the main drivers behind the rapidly increasing property values. A key tool used by governments to manage inflation is increasing interest rates, but this obviously has a knock on effect in terms of the cost of borrowing for property investors. However, there is a difficult balancing act for governments currently because they cannot dramatically increase interest rates in the short term as this will inevitably reduce consumer spending and therein slow down economic recovery,” explains Norris.
Therefore, despite the interest rates going up in the future, Norris does not believe there will be any negative impacts on property values in the short to medium term. “The real estate market as a whole has proved to be resilient in times of a large economic crisis and if interest rates only increase incrementally over the next few years as expected, it still makes a lot of sense for clients to be investing in offshore property, provided they invest in good quality products that are well researched, in markets like the UK.”
The fact is there is a huge supply and demand imbalance in the UK property market that cannot be corrected any time soon. There is also a huge amount of money globally chasing returns and currently property is one of the favoured assets for these investors as they are not getting any return on their cash savings. “Essentially we still have the perfect storm for property prices to increase significantly more in the short to medium term,” says Norris.
According to PWC’s Emerging Trends in Real Estate: Road to Recovery Europe 2022, “business confidence and profitability expectations have recovered to pre-Covid levels. For many, this means the performance of real estate looks relatively strong for 2022 with higher forecast returns than a year ago.”
The report confirms that city rankings have not changed much in the last 12 months albeit notably London has stolen the top spot from Berlin for the best overall investment and development prospects for 2022.
“For us, the big focus currently is in the UK because it’s one of the best performing property markets in the world and is most probably the number one market globally in terms of investment, alongside the United States,” says Norris. “The UK is a very dynamic property market and has high levels of protection for buyers, and legislation and legal structures are stable.”
Where to Buy in the UK
There are three key residential areas in the UK market, that RPA and Carrick Property focus on.
1. Greater London
This refers to outer lying London locations within the M25 London Ringroad that encompasses the city. These locations are well connected to the CBDs of central London yet they are far more affordable for domestic buyers than central London where prices are extremely high. A development to consider here is Hayes Village in Middlesex, a brand-new development, well connected (within easy reach of central London) which is being built by a FTSE 100 developer.
2. Commuter London
These locations are typically a 30 to 60 minute commute to the city. This is one of the fastest growing property markets in the UK because Covid-19 has changed many people’s requirements, allowing them to work from home two or three times a week and be more flexible with commuting. “Here you can get more for your money and access to green space, without the need for such close proximity to transport hubs,” says Norris.
3. Regional UK cities
Cities like Birmingham and Manchester are booming but Birmingham is the pick of the bunch. Birmingham has emerged from the pandemic as one of the UK’s fastest growing economies and is predicted to see the highest level of growth over the next four years, having been placed firmly on the map as the host of the 2022 Commonwealth Games. The ‘Big City Plan’ that kickstarted Birmingham’s transformation continues and large sections of the city are being revitalised. With construction underway on High Speed Railway Link 2 (HS2), which will connect London to the Midlands in just 45 minutes and see the creation of five major new stations, further growth potential is expected. It’s also home to the biggest retail centre and more Michelin Star restaurants in the UK than anywhere else outside of London. The city also benefits from a huge student population, five universities and the biggest exhibition centre in the UK. “It represents very good value for clients and enables a typical South African client who maybe only has a couple of million rand to invest, with a viable opportunity to get exposure to the UK property market, which would otherwise not be available in Greater London,” says Norris.
When advising where to buy property offshore Carrick Property looks at key areas including property price growth, rental yields, tenant demand, regeneration (current or potential) and transport links. “Due to the complexities of purchasing property abroad, it’s important to have a specialist on board,” says Scott Irving, General Manager at Carrick Property, which works with key partners such as RPA Group on the ground in investment-friendly areas, and is able to assist clients in finding the right property in the right area based on budget and objectives, as well as securing mortgages.