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Durban - Financial crises, as we're seeing in many equity markets and particularly in residential property, often offers the potential to make money.
Three South African-born brothers are taking a view through the property gloom and intend setting up a "vulture fund" for local investors to take advantage of the international property meltdown.
The idea is to negotiate bargain prices, mainly from distressed sellers, in some identified and researched residential property markets around the world.
"It's primarily a rand hedge for South African investors, but should also achieve attractive capital gains when residential property prices start to recover," says Anton de Leeuw. "For instance, you can currently find apartments in central Belfast at half the average price."
Perhaps surprisingly, the fund is avoiding for now properties in the US and UK, where the sub-prime credit crunch has probably had the largest effect on residential prices.
"According to forecasts we've researched recovery of residential property in London is only expected around 2013. The Republic of Ireland, on the other hand, saw residential prices start declining earlier, before the credit crunch.
"In some cases prices have declined by 20%, that's a big drop. But since joining the European Union Ireland's economy has stabilised and it has a young and growing population. I think it's approaching a natural buoyancy point so the pick up in prices should occur sooner."
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Apart from the Republic and Northern Ireland, the fund is also looking at properties in Poland. "Like most parts of Eastern Europe there's a large wage gap with Western Europe.
"But this will decrease, and when it does property prices will increase."
De Leeuw runs the family business, property investment education firm YDL, in South Africa. Brother Karl is a quantity surveyor and property investor in Dublin, while third brother Mike works as a CA in Australia and is chief financial officer of a private equity firm.
The De Leeuws have a long history in property, and are sons of quantity surveyor and former president of Sapoa, CP de Leeuw.
The three brothers have built up a property portfolio in eight countries around the world over the past decade.
This, however, will not be part of the proposed vulture fund. "That could represent a conflict of interest," says Anton de Leeuw.
The fund is aiming at raising R100m from local investors. "However, we will use bank finance to start buying properties before the amount is raised, if necessary. It's important to get the timing right."
He can't say what potential returns to South African investors will be, but says the fund is targeting an annual internal rate of return between 15% to 20%. "Of course the return will be better if the rand depreciates against the Euro."
Minimum investment in the fund is €20 000 (about R232 000). There are three levels of fees - an establishment and sourcing fee of 2.5% of the purchase price of a property, a scaled annual management fee of 1.5% of the fund's net asset value, dropping to 1.25% after three years, and a performance fee of 15% on gains in the portfolio after liquidation.
The performance fee might be contentious, though De Leeuw says fees compare favourably with other property funds. Potential investors should however probably consult an independent financial advisor or property expert.
Investments in the fund will be in the form of buying shares in the company structure of the fund and management company, domiciled in the Republic of Ireland.
- Fin24.com