Wealthy follow the trail to London
Johannesburg. – For wealthy South Africans who want to expand their property portfolio offshore, all roads lead to London.
Observers say that since the Reserve Bank relaxed exchange control in 2010, allowing individuals to invest R4m offshore, South Africans' appetites for brick and mortar investments in the British capital have increased dramatically.
The London residential markets has over the years consistently performed better than housing markets in other global cities. From the latest Knight Frank Prime Global Cities index it appears that prime property in London saw 12.1% growth year on year last December.
A luxury unit in the iconic One Hyde Park development in Knightsbridge was recently sold by Savills for a record £140m (about R1.7bn).
Prices in this development are disclosed only to qualifying selected potential purchasers, says Dr Andrew Golding of Pam Golding Estates (PGE), which markets properties in the development to South African investors.
He says London is like an island on its own, where capital growth and rental yields remain attractive, despite what is happening in other global housing markets. This makes the City of London a favourable investment destination for local and international investors.
Investors can expect an average gross income yield (the annual rental income as a percentage of the property value) of up to 6% on an average property, compared with about 4% in South Africa.
A popular price class among South Africans is lettable units ranging from £600 000 to £800 000. PGE currently markets units to South Africans in the Baltimore Wharf development in the heart of London.
Prices start at £440 000 and Golding says that, depending on the individual, finance of 60% to 70% of the value of the property is available through Savills Private Finance. Some of the units in the Prime Avenue project in the Baltimore Wharf development fetch rentals of £300 a week.
Mike Smuts, managing director of Smuts & Taylor, says that last year the company sold more properties in London to wealthy South Africans than in 2009 and 2010 combined.
This company is a London property investment firm owned by South Africans who specialise in selling land and property to South Africans.
He said wealthy South Africans like sensible investments and, because of the continuing uncertainty about the timing of the global economic recovery, most prefer to have residential investments in London as a safe haven.
Amazingly enough, he says, they don't base their decisions on offshore investment merely on fears on the rand losing value or the political uncertainty in the country, but rather on solid financial planning, which includes diversification of asset classes and markets.
He said central and south-western London remain favourite areas for his clients who buy in the £300 000 to £500 000 price range for investment purposes, for which they receive gross income yields of 5.5% to 6.5%.
An increasing number of wealthy buyers have been purchasing a second property in London for their personal use. Some clients have “trophy” properties in coveted areas costing more than £1m at the top of their shopping list.
Apart from South Africans, there has also been a rush of investors from Russia and China. Smuts says the stream of foreign buyers and the chronic shortage of accommodation in the city will increasingly support price growth.
The company is currently marketing the Kew Bridge West development in Kew to South Africans.
Prices start at £249 995 for a luxurious one-bedroom unit and investors are guaranteed a 6% yield for the first year, as well as 6% interest on clients' money deposits until the development is completed. The first phase is expected to be completed in the second to third quarter of 2014, which presents a golden opportunity for capital growth, he says.