In the last month, I have noticed an interesting trend, most of the clients that I have sold UK investment property to have been aged between 35-45.
The question is why are they choosing to invest in UK property rather than buy property in South Africa? Sophie Gamborg, UK property specialist for South Africans looking to invest offshore discusses their reasoning and why they see the potential for longer term financial gains by investing in the UK as opposed to South Africa.
1. Strong currency
Most South Africans who take funds offshore do so as a security measure, they feel more confident once they have converted rands into UK sterling or US dollars. The majority chose tangible assets over Bitcoin or shares, which are more fluctuating and can pose a risk to capital. The rand is a depleting currency, if you grow wealth here you are competing against 1st world markets. If you start investing in UK property you can begin to build wealth in the 6th biggest economy in the world, giving younger investors the chance to achieve greater global independence and an opportunity to gradually build an income stream in UK pounds, putting in place a strong financial support for the future.
2. Retirement and education planning
For the younger generation there is an added factor; they have started to become conscious of retirement and education planning and want to invest in the safest place they can. I myself am in the 35-45 age bracket so the most important factor for me when it comes to investing is that my money is safe and that I can make it grow. When I was in my 20s, making plans for my children’s education and retirement planning was not at the forefront of my mind, I was more concerned with getting a university degree and finding a good job. Now the time has come when planning for the future is something I am seriously thinking about because I am married and have 2 young children. I want to put plans in place for their future but also for my husband and I. If I can generate an income in UK pounds, through renting a UK property, whilst I am living here in South Africa, I will have a support base in place and options should my children want to be educated in the UK at a later stage.
3. UK housing shortage
The UK has a massive housing shortage, it is one of the biggest challenges the country faces. The UK Government has pledged to build 300,000 homes per year but is not managing this rate and less than 250,000 were built last year. House Building in the UK is lower now than it was in the 1960s, which means supply is low and demand is high.
4. Record level of renters
If we couple this with the record levels of renters in the UK, it makes the UK housing market a strong investment vehicle; property is in demand and the rental market is booming.
5. Access to cheaper finance and UK mortgages
A South African has access to interest only UK bonds, allowing them to take funds out of the country. There is a R1 million annual allowance that can be taken out of the country so through the use of UK bond and structured payments with certain UK property purchases, it allows South Africans to keep within this allowance. The rent from a property covers the mortgage because the UK rates are around half what they are in SA currently and are set to drop even further. According to a statement released by the International Monetary Fund last week, the “UK is set to see the return of ultra-low interest rates”
6. Higher than average capital growth returns
If you buy an apartment in a northern UK city you would expect to see significant capital growth over a long-term property investment. For example, house prices in Manchester have increased 85% in the past decade and in Birmingham 56% over the same period. Large corporations are relocating out of London to these areas because costs are cheaper and there is a young workforce, due to the world-class universities.
7. Investing in more affordable strategic locations
The UK presents an opportunity to grow your capital through property by buying in strategic locations. The UK government has set up the “Northern Powerhouse Initiative”, with a plan to build up the northern UK cities through billions of pounds of funding into infrastructure and development. https://northernpowerhouse.gov.uk