There has been a growing demand in South Africa for UK investment property – let’s have a look at the reasons why and what is the motivation behind these investor’s hedging against the rand?
2022 has seen huge volatility in the global stock markets and cryptocurrency; and investors have become cautious. In June this year bitcoin was down 60% and the global markets posted the worst first-half performance in decades. It is therefore not surprising that investing in tangible assets has become much more appealing as investors diversify their portfolios. If the stock markets crash you risk losing significant capital, whereas if the property market were to crash you still own that asset and are level with the rest of the property market.
For South Africans, UK investment property provides a hard currency income from rental returns, which allows investors to secure a more fixed income, especially when building longer term portfolios. It provides a degree of security for a South African wanting to put in place a plan B, either in the form of an investment for their children, should they wish to study overseas, or as a retirement option. Property offers stable, long-term returns despite market fluctuations, especially when based in a politically stable, 1st world, high ranking economy such as the UK.
An attractive factor is that South Africans have the opportunity to leverage off attractive international interest rates, especially in comparison to the high lending rate in South Africa. The UK offers interest only mortgage repayments and up to 70-80% loan to value. The only requirement for a South African is that they are earning at least R300,000 per year to be eligible for this.
But is now the right time to buy? The UK property news may be negative but the outlook for buy-to-let investors is very positive. Get in while the market is low.
The latest UK property headlines paint a picture of doom and gloom; the mortgage market is volatile, house prices are down, interest rates are up and there have been huge changes within the government. With 3 different prime ministers this year alone and a change to the head of the monarchy, is now the time to look at buying UK investment property?
Arguably yes, we believe it is a great time. The increasing rate of inflation combined with higher interest rates is pushing first time buyers out of the market as they struggle with the increased cost of living and into the Private Rented Sector. According to The Guardian, demand for rental homes in the UK is “up by 23% in a year, as rents hit a record high”. In November this year The Times quoted that the average monthly UK rental was £1,175, an increase of 11% in a year and demand continues to heavily outweigh supply.
Which are the best UK property Markets to focus on?
The best UK cities for buy-to-let property investment are those that offer high rental yields, good quality of life for residents and prospect of above average house price growth potential whilst remaining affordable. Birmingham and Newark-on-trent, are two examples we have identified as great options. Birmingham is the UK’s second city after London and the ideal location for investors who want quality property in a top UK city but are not able or willing to pay London prices. The city is undergoing billions of pounds of regeneration with inner city development, including the new HS2 railway network; which will connect London to Birmingham in under an hour! The city has become a hotspot for companies looking to relocate: Goldman Sachs, HSBC, Deutsche Bank to name a few. In the past decade house prices have risen 56% and it is expected house prices will increase a further 20% in the next 4 years. PWC ranked Birmingham among the top cities in Europe to invest in.
In Newark, house prices were up 20% in 2021 alone according to Halifax, making it the second-best performing town across the UK and prices are still very affordable for prospective investors. Yields are also incredibly strong, driven by a severe lack of supply within the town centre. The town is to receive a £25 million grant from the UK government as part of the government fund initiative. It is steeped in history, with its own castle and magnificent Nottinghamshire countryside, yet up to speed with excellent commuter links, it is no wonder that young families and professional couples are flocking there.
Buying property in a foreign country can be a daunting process, however, our team will hold your hand and guide you every step of the way. We are here for the long run and our goal is to help people build generational wealth with a global investment property portfolio.
LIO Global SA