Diversification is Key
Offshore property investment opens doors to global investors. If a South African investor wants to diversify his investment portfolio, he can step outside the South African market and add properties abroad to his portfolio. This can serve as either a safety measure or purely an investment diversification. It is attractive for South African investors whose home market is volatile with the tenancy laws currently in place in South Africa.
Here are a few reasons why you should invest in offshore property:
- Capital growth with a Rand hedge
- Rental income in foreign currency
- The Market Can’t Get Much Worse – good time to buy
- You need not sell after a term/period
- Substantial shortage of residential property
- Degree of control
- Lower volatility
- Tax benefits
- Hedge against inflation
Capital growth with a strong Rand hedge
Using the UK as an example, if you bought a £100,000 property in 2006 when the exchange rate was £1 = R10.69 you would have paid R1, 069,000. When we take a moderate capital growth of 2% per year over the 6 year term it would in 2012 be worth £112,000. This is where it gets interesting, if you sell the property at the current price and convert at the current exchange rate (June 2012 – £1 = R12.92) you would in fact have sold it for R1,447,040 which is a total return on investment of 35%.
Rental Income
Probably one of the biggest advantages of owning investment property is that you can start receiving rental income almost immediately. As this is a service we offer you can be assured that we use some of the best letting and management firms to find suitable tenants for your investment.
The market can’t get much worse
As we all know the recession of 2008 affected the property market on a large scale and the current market situation gives investors the opportunity of purchasing property at prices below former market values. The best advice from any successful investor would be to buy low and sell high, and a better time to buy low certainly won’t come along any time soon.
You need not sell after a term/period
Unlike most other investments, when real estate goes up in value you don’t need to sell in order to capitalize on that increased value. In cases like these most investors simply go back to the bank or mortgage broker and increase the loan in order to purchase more property.
Substantial shortage of residential property
The inflow of immigrants from the EU and African Countries due to job opportunities has left the UK with a large housing shortage. According to Bloomberg, Housing Minister Grant Shapps has stated that the UK is unlikely to ever develop enough houses and apartments to meet the demand of its population.
Britain needs to build around 245,000 residential properties annually in the decade through 2023 to meet demand, according to the Department for Communities and Local Government. That would leave a shortfall of at least 43,000 homes a year for the next five years as estimated by Savills Plc (SVS).
Degree of control
This is a factor which cannot be overlooked. When you invest in shares you have absolutely no control over the performance of the shares as well as the subsequent income generated by the shares. With property investments you have a form of control over your investment.
For example, if you want to receive a higher rent, you can always upgrade the property to better suit a tenants needs. If you wish to increase the value of your property a simple renovation, landscaping or possibly even interior additions can have the desired effect.
Lower volatility
Investing in property offers stable returns and the investor can sleep well at night knowing that the value of his property is very unlikely to plummet overnight, this can easily happen to the share market as history has shown. Property values can come down, but it cannot disappear like bankrupt companies who deregister their shares.
Tax benefits
Property investors are able to take advantage of a range of tax benefits including tax deductions and depreciation allowances. These are too detailed to mention here, but are important and greatly underestimated.
There are several tax benefits available to offshore property investors. Using property as security to borrow money to purchase other property allows you to leverage to a great extent. One of the tax advantages with this greater leveraging is that you can claim a tax deduction on the interest charged on the loan.
Having stated the above property should never be bought just for the tax benefits. Getting a tax benefit should be a bonus, not the sole reason for purchasing.
Hedge against inflation
Historically in Australia and the UK property increases at a greater rate than inflation. Periods of growth may vary but generally speaking in real terms and on the long run property growth outstrips increases in inflation.
