By Megan Copley, Director: Offshore Real Estate Investment, Sable International
Investing in offshore real estate is a great way for South Africans to diversify their portfolios, build wealth and secure an asset that can generate income in a foreign currency. There are a range of ways to invest and different types of property will suit different types of investors. Megan Copley, Director: Offshore Real Estate Investment at Sable International, looks at four popular ways for South Africans to invest in international real estate.
Buy-to-let property
Probably the most popular and well-known type of real estate investment is buying a property that you plan to rent out.
This type of investment is so popular is because it gives you a title deed to the property. So you, as the investor, own that property and a piece of the country in which you are buying it. This gives you an asset that generates an income in a foreign currency (that may be more stable than the Rand) and can one day be passed down through future generations. In addition, foreign countries often have different tenant demand and rental laws, which can protect you as the landlord.
Purchasing property in another country is a much more straightforward process than many people realise. It’s largely the same as transacting on a house in South Africa. While you can buy your offshore property in cash, in many cases you only need to put down a deposit and then you can get a mortgage for the rest. Interest rates will vary but are often significantly lower than what you’d find in South Africa.
When buying-to-let, you’ll want to ensure that you find a property that has a higher rental income than your monthly obligations to service the loan. It’s essential to research the area and market where you’re selecting your property. An experienced offshore real estate adviser will be able to help you find a property where your projected rental income will cover your debt and even earn you a profit.
Commercial property
When thinking of commercial property, many think of offices, shops or factories. However, some common types of commercial real estate for investors are student accommodation, social housing and care homes.
What you’re looking for with a commercial property is a monthly yield. It’s a good investment to consider if your primary desire is to earn an ongoing income and it’s a great way to earn regular hard currency.
However, the primary difference between purchasing a commercial property and a buy-to-let is that commercial properties generally require a larger outlay and you have to pay cash, you generally can’t get a mortgage for this type of property investment
What type of property is available and how much it costs will vary widely depending on the country where you’re planning to purchase.
Buying off-plan
Buying off-plan essentially means buying a property that hasn’t been constructed yet, by viewing a brochure, floor plans, material finishes and researching the location. This does add an element of risk as it is not yet built. However, it can also offer significant growth or ROI over the construction years. This option has many positives, such as access to sought-after locations and a well built and finished property.
Generally, you will only need to put down a deposit of about 20% initially and the balance will only come due when construction has finished. This enables you to plan ahead, to save up or shop around for a mortgage on the remainder.
This is a great type of investment if you’d prefer to make profit from selling your property once its value appreciates rather than relying on rental. It’s good for someone looking for a shorter-term investment, who doesn’t mind a little risk.
We reduce this risk for our clients by only working with trusted developers and choosing off-plan properties in areas where there is a growing property market and also a high demand for rentals. This leaves your options open and allows you to future proof your property investment.
Equity investment
For the investor who prefers to be completely hands off, another option is to invest through a real estate investment trust (REIT) or private equity fund (PEF).
In both cases, rather than owning a deed to a property, you buy shares in a property. In exchange, you receive a possible return on your investment.
REITs are companies that own income-producing commercial real estate and allow you to invest through them. We prefer PEFs because they seek investors for a particular asset, like a hotel, that they have identified as a good opportunity. They therefore have a greater vested interest in making a success of the project and often offer incentives, like guaranteed return over a set period or free accommodation for a few weeks a year.
When choosing a PEF, it’s important to work with established and reliable fund managers to give you the greatest chance at earning a decent return. Always ask to see records of past project performance.
General tips for offshore property investment
- Find a company that you can trust locally to manage and run your asset for you. Especially when it comes to rentals, you will always need someone on the ground you can rely on to have your best interests at heart.
- Use a mortgage broker when seeking to borrow internationally. They will help you find the best deal for your particular circumstances and their knowledge of the local market will be invaluable. (We can assist directly with UK mortgages and have partners that can help across Europe and Mauritius.)
- Find out the growth percentage that can be expected in the location where you’re seeking to invest. Many socio-economic factors can impact the property market and the value in an area can change a lot in just a few years.
- For off-plan or equity investments, only work with established developers with a proven track record.
- Research rental expectations for the area you wish to invest in, as well as the general tenant profile.
- Understand your risk profile and investment timeline as these factors will impact which type of property investment is right for you.
- Seek assistance from specialists. Tap into the knowledge and experience of professionals familiar with the ins and outs of offshore real estate, who are transparent about their fees and who put your interests first.
