There is a lot of economic doom and gloom in SA( and in the world) right now. If you consume enough daily news you might be convinced that the world really is falling apart. Many say another economic collapse is imminent so stand back and wait. The economic downturn will eventually pass, however, most seasoned investors do the opposite in poor economic circumstances otherwise they would not invest and always see opportunity when others see disaster. This brings up another question, which is, where to invest in the world now given the weak local economy, fluctuating currencies, lack of finance for investors, a possible credit downgrade and political uncertainty here in SA. Investing your hard earned money is not always easy. The decision you make today will determine your future results either good or bad.
“ Make yourself sheep and the wolves will eat you” – Benjamin Franklin
Some investors have forgotten the fundamentals of investing which is,‘ the action or process of investing money for profit,’ according to Wikipedia. Real estate internationally has the key advantage of being used as a dwelling space, having the ability to borrow against the security of the asset, rental income, depreciation, costs that can be tax deductible, profits sheltered and indexed against monetary inflation. Too many property investors regularly return from their experiences by losing money and coming back with war stories and battle scars. They blame poor economy, timing or on choosing the wrong asset. The more educated savvy investor who invests on the market lows return from their exploits with a different view. Normally it is suitcase full of advice and a portfolio of positive cash flow investment properties generating excellent rental returns.
According to FNB the estimated pace of selling buy-to-let properties in SA remains low, suggesting still-low levels of financial stress and pressure in the market. A lack of exuberance in this market may become supportive of this market, constraining growth in supply of available homes for rental. This coupled with the expectation of increase in demand for homes to rent, could contribute to strengthening in the rental market in the near term. Compared to 2004 where proportion of buy-to-let purchases were 25 % of the total purchases today it is only 7,6 %. So clearly while there are signs of poor performance in the SA market there are normally great opportunities. This coupled with lack of bank finance locally is forcing many investors to invest offshore in a more stable environment.
It is always good idea to stick to the principles of investing according to international investor and my good friend Dr. Dolf de Roos, which is:
• You make money when you buy
• Always buy from a motivated seller
• Never be the first to name a figure
• Fall in love with the deal not the property
• Be counter cyclical
• Buy with zero or little money down
• Seldom sell
• The deal of the decade comes along once per week
Why the move to offshore investment? It becomes a symbol of success when your property investment business starts investing abroad. But you also know when to make the leap and why you want to make the leap.
There are lots of considerations to take into account before you invest offshore such as:
• Impact of Currency fluctuations
• Setting up a legal entity in the country you plan to invest
• Opening up bank accounts
• Getting good tax advice
• Finding the right investment property
• Having reliable partners on the ground
• Managing your properties from a distance
• Getting finance
• Time zone differences
• Having good communication channels in place
• Understanding local property lingo and the culture
• Understanding the local property buying process and legal implications
With all that stress why even go global at all? You can hand your cash over to somebody else to invest for you without all the hassles. Many investors prefer this. Hands off investors like these tend to invest for capital growth in stable, safe haven big city destinations such as London, Sydney, New York, Munich, Dubai and even European countries like Portugal, Germany and Spain in some cases. George Radford, Director of IP Global Africa says,“ Real estate investors from South Africa and other African countries like Zimbabwe, Botswana, Zambia and Kenya have consistently shown a healthy interest in the UK and Australia mainly due to shared historic connections.”
According to Linda Muscarello former President of Real Estate Investment Association( REIA) in the US says,“ Real estate is a unique asset that is largely misunderstood by most investment advisors, estate
www. reimag. co. za NOVEMBER 2016 SA Real Estate Investor 13