With global property investments growing and local investments underperforming, now is a good time to diversify your property portfolio.
Lately we have been seeing so many reports about the declining state of the South African economy. You only have to open a newspaper to see that at the moment the economy is not growing as we had hoped and that people are nervous. The local property market is no different, with the real value of houses and rental values on the decline.
SA residential properties are declining in real value
July's FNB Property Barometer actually showed that when corrected for inflation, SA residential properties had dropped in value. While year-on-year residential properties grew by 4.1%, with CPI at 4.6%, real property prices are decreasing. FNB's household and property sector specialist Johan Loos also said that SA's slow economic growth meant we could expect year-on-year house price growth to be adjusted even lower to 3.5% for 2018, down from 4.3% last year.
Hedge your local investments by investing abroad
On the other hand, the property market in the UK is showing excellent growth. We believe that these factors make now a good time to hedge your SA property investments by investing in the UK property market and, by so doing, creating a better global wealth strategy.
Negative growth expected for two to three more years
Being an emerging market, South Africa's economy is impacted by external factors out of our control. Add to that the external debt, inflation and low employment figures and it seems likely that the negative growth will continue for the next two to three years. At a recent property conference, Nedbank's senior economist Nicky Weimar said that she believed the rand would remain unchanged against the big international currencies for the next few years.
This suggests that it may be unwise to hold off for a few months hoping for a better exchange rate before investing offshore. Especially considering that the 31 December deadline for this year's offshore allowances is approaching.
Deadline for 2018 offshore allowances is approaching
The South African Reserve Bank allows South Africans two offshore allowances annually: the single discretionary allowance of R1 million, available without having to obtain a tax clearance, and the capital allowance for up to R10 million, which requires tax clearance from SARS. These allowances can be doubled if you are a couple. If you want to use your allowances for 2018, you need to act fast.
Property in UK cities is booming
Even with the uncertainty around Brexit, growth in the UK is at a stable and steady 1.6%. The property market in cities like Manchester is booming. HSBC and JLL have named Manchester as the best city in the world to invest in this decade.
The Land Registry data compiled by Savills Research in the UK shows that house prices in Manchester are up by 32.5%, increasing by 8.8% this year alone. JLL have predicted that Manchester property values will continue rising by a further 22.8% between now and 2022. This is higher than the 16.5% for the UK's North-West and 10.3% growth predicted for London.
Manchester offering sought-after riverside developments at 6% net yield
We have found some great investments for our clients in Manchester. There are beautiful riverside developments going up, completed by reputable developers. These are excellent investment opportunities, especially for South Africans, as they are sought-after and can be fully managed at a net yield of 6%.
With the market factors being what they are, this is a great time to hedge your investments with some abroad and some local.
Lisa Bathurst, international property specialist and director of Hurst & Wills.
19 Nov 2018