Global Real Estate Report reveals new cities in which to invest

The trend for South African property investors is to keep their stock in stable, safe-haven destinations like London, Melbourne, Chicago and Berlin, but a global investment report issued recently reveals some new appealing pockets of value.

Brisbane has experienced vigorous investment, regeneration and infrastructure development and remains a more affordable option than Melbourne and Sydney.

This investment insight is in a biannual report – the Global Real Estate Outlook – composed by property investment firm IP Global, which identifies and analyses the best-performing and new cities for property investment as well as those to approach with caution.

According to the report London, Manchester, Melbourne, Berlin, Chicago and Tokyo top the wish list for global real estate investors with current preferences of sub-Saharan African investors being Adelaide, Brisbane, Hamburg and Vienna.

“Property investors from SA, Zimbabwe, Botswana, Zambia, Kenya and Nigeria have consistently shown a healthy interest in the United Kingdom and Australia – due to the shared historic connection. Europe and finally the USA follow,” says George Radford, director for Africa at IP Global.

The Global Real Estate Outlook reveals London as a solid global investment choice and firm favourite with sub-Saharan African investors – thanks to a constant housing supply shortfall putting pressure on house prices. Britain’s dawn-to-dusk, dynamic capital has seen interest rates cut from 0.5 percent to a record low of 0.25 percent following the European referendum vote, making this market particularly attractive for buyers.

In Australia, the fast-growing city of Melbourne is well on its way to overtake Sydney as the country’s largest city by the mid 2050s. Its apartment prices have shown a steady average increase of 5 percent a year over the last 10 years but have recently accelerated with the city displaying average growth of 11 percent this year to February.

Next up on South Africans radar is Adelaide – the fifth most liveable city in the world and second Australian city behind Melbourne with an affordability ratio of 6:4. The city’s population forecast to set to grow 22 percent over the next 20 years to 2036 with median prices having increased 3.9 percent year on year to May 2016.

Elsewhere in Australia, the Queensland capital of Brisbane has experienced vigorous investment, regeneration and infrastructure development. Although property prices have been on an upward trajectory – with house values increasing 5.5 percent in the year to March – Brisbane remains a more affordable option than Melbourne and Sydney.

Sub-Saharan Africans are also keen to invest in Germany’s second largest city, Hamburg. Its property prices have increased by an impressive 40 percent in the last five years, with strong demand putting the pressure on – exceeding supply by as much as 33 percent in 2014. More good news for potential property investors is that rents are predicted to rise by 9.6 percent by 2018. Hamburg also offers a lower property tax of 4.5 percent, in comparison to Berlin’s 6 percent.

A further European city South Africans are exploring is Vienna, which has held the number one spot in the Mercer Quality of Living index for the past seven years to 2016 and ranked number three on the innovation cities index in 2015. It boasts a 10.5 percent average property price increase a year over past five years.

Over the last decade, Vienna has experienced 10.1 percent population growth with a 27 percent increase expected by 2060.

A 50 percent supply deficit for one-bedroom apartments is predicted with less than 5 000 new apartments supplied and demand for 10 000 in the next 10 to 15 years. In line with this rents were up 2.5 percent during 2015 with average apartment prices up 2.1 percent in 2015 and the total value of apartments in Vienna valued at €7.2 billion at the end of 2015, marking a 19.7 percent (€1.2 billion) that year.

About 300 000 new residents are expected in the next 10 to 15 years, following growth of 43 200 in 2015.

The USA city IP Global recommends sub-Saharan African investors set their sights on is Chicago. Showing average yields of as high as 7.9 percent, Chicago remains a top choice for investors seeking good value in the US.

While the Sub-Saharan African real estate investor market has not shown any radical shifts over the past year, Radford says that SA investors took advantage of the window of opportunity an earlier strong rand offered.

“SA investors typically prefer to purchase buy-to-let international residential properties as income-producing assets because they are more tangible than other property investments such as property funds. While their one or two bedroom units are rented out their tenants cover their bonds, and they can look forward to owning the property outright in years to come, or passing the asset onto the next generation,” he says.

This region’s investors however also face barriers to entry, such as fluctuating currencies, the size and cost of global real estate transactions, and difficulties with obtaining mortgages.

“That is why we’re focusing our strategy on exploring new potential markets in the regional parts of the UK, Australia, Europe, the USA and also Canada as these present our local investors with further options to grow their portfolios,” he says.

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