Real Estate Investor Magazine South Africa Dec/January 2020 | Page 57

I nternational property specialist and founder of Hurst & Wills, Lisa Bathurst, discusses the pros of cons of investing in tangible property assets vs. the stock market. “Stocks and shares are a popular and traditional investment usually forming the basis of pensions, retirement plans and bonds,” Bathurst says. “While an investment property (usually a property one buys to rent out and earn an income from) is more tangible as we can see it and feel it. It’s within our control. We can do things to improve its value and judge when it’s best to sell.” Last year the Johannesburg Stock Exchange (JSE) had its worst year in a decade. It was down 11% in terms of the rand and 24% in terms of the dollar. “From this it’s clear that South Africans need to reconsider retirement fund returns, especially in light of regulations that enforce an overreliance on SA equities,” says Bathurst. “The stock market worldwide has also been increasingly volatile and is impacted by things outside of our control. Trade wars with China, uncertainty around policies, Trump and Brexit have made it much harder to predict,” she says. In SA, the property market has been challenging over the last couple of years. “Anyone who invested in the Atlantic Seaboard back in 2013, doubled their money pretty quickly. Now the growth is slower,” she says. “For more steady returns, we have always looked to the UK. The UK residential property market has outperformed all asset classes, including commercial property, stocks and gilts, over the last 30 years.” Student accommodation in the UK is the most resilient asset class of real estate, providing high yields. In fact, during the 2008 recession, the student property market in the UK was the only one that provided healthy returns. “It is an affordable investment and compares well with prices of student accommodation in a local student town like Stellenbosch,” says Bathurst. “In Newcastle on Lyme student accommodation will cost around R1,4 million while in Stellenbosch the price is around R1.9 million. Our UK accommodation is complete hands-off, from tenant finding to management and maintenance and it comes fully furnished,” says Bathurst. “Our UK student accommodation also has a guaranteed yield of 7.5% Net, inclusive of service charges, maintenance and tenant costs. You won’t find this guarantee in South Africa,” she says. "Purchasing in GBP may yield you an additional return given that leading economists believe the GBP to be undervalued by up to 20%,” she says. How do they compare? “Some advantages of the stocks and shares is that you can spread the risk across various investments, which in theory should smooth out any market volatility. You can also invest less than what it usually costs to purchase a property,” she says. “Stocks are fully managed, which may be less hassle for you, but you must trust and pay the expert employed to manage it on your behalf.” “There is usually a long history of data available to help you choose an investment property, and help you decide when it’s best to buy and sell,” says Bathurst. “What’s great is that you make the choice yourself. You also have option to add value to a property investment in terms of making improvements, and you have choice as to when and who to rent it or sell it to. You can even live in it. This type of asset gives you choice and control,” she says. “Generally, the capital growth on property is good, as property tends to go up in value. This is usually coupled with rental income, the combination of which can make for very healthy double-digit returns,” she says. “However, the transactional costs are high, property is expensive, so the financial commitment is a more serious and considered one.” Whatever you choose, it is best to take the plunge, says Bathurst. Think about these to help you decide what to invest in: What capital do you have to spend? Do you need the investment to yield you income from day one? Are you looking for an active or passive investment? Do you want to control it? Do you anticipate needing access to the tied-up funds quickly? “So many clients have held off investing and then missed out. One client was due to purchase two UK student accommodations in July when the rand was R17.53 to the GBP, making the price per unit R1,293,750. He decided to wait for a better exchange rate. Today the rand rate is R19.53 to the GBP meaning the purchase price has increased in rand terms to R1,464,750,” she says. “In another case, a client has waited 12 months to see what happens with Brexit before committing to a one-bedroom apartment in Manchester. She is still waiting, and last year alone Manchester saw a 16% growth and prices have increased to reflect this,” she says. “Waiting too long to divest SA assets is another common situation, and unfortunately SA property is in negative growth in real terms, when you take inflation into account, so your rand priced property decreases as your offshore property price increases,” she says. For more information email [email protected] or call: [phone]. SOURCE Hurst and Wills DOWNLOAD Offshore Guidebook 2020 at reimag.co.za SA Real Estate Investor Magazine DECEMBER/JANUARY 2020 55