South African Property groups are spreading their wings abroad as opportunities in their home market are few and far between.
It’s no secret that 2018 was a difficult year for SA local investors with most asset classes declining in value both locally and abroad. However, one asset class does stand out amongst the rest – SA’s listed property sector.
“The sector is wading off many challenges including a weak economy, a volatile rand and tenant struggles. And much of the sector is now offshore which is providing support to investors returns,” said Ortneil Kutama, Africa Property News Media Director.
Brexit chaos is battering the UK property market, but SA investors with an appetite for volatility are snapping up real estate in the country.
They are lured by falling UK property prices on the back of a weak pound and looking for favourable returns over time.
According to UK building and project consultancy, Paragon, has advised South African investors on 29 deals with a combined value of R3.38 billion (£190m) in the past few years.
London has seen few large deals with South African investors in recent years, but Paragon has observed a significant uptick in inward investment from the country, driven by discounts on currency as the pound weakens.
Paragon’s joint managing director, John Munday, said in email statement that the trend looks set to continue. “There are always trophy asset hunters looking to make a mark in London, and that is an appealing approach for some. But we’re also seeing many South African investors being hungry for new opportunities and asset classes all across the UK and in every sector.”
“South African investors keep a relatively low profile in the UK, but they’re now looking much more open-mindedly at the whole UK market,” says Munday.
The listed property sector has grown almost six-fold to R600 billion over the last decade.
“The growth was largely fuelled by local property companies expanding abroad and they are likely to continue to make more money offshore than in their own backyards,” Kutama adds.
There has been a change in the thinking of the South African investor community towards offshore diversification in recent years.
“The sector has seen a dramatic shift offshore with about 46% of its value in overseas markets, including eastern and western Europe,“ says Kutama.
Eastern European-focused property stocks such as Nepi Rockastle, MAS Real Estate and EPP NV look set to reward investors in 2019 as they benefit from strong economic growth and improving rentals there.
These companies have exposure to the likes of Poland, Romania and other countries in central and Eastern Europe, which have strong property fundamentals.
The World Bank has projected that the Polish economy will grow about 3.9% in 2019 and 3.6% in 2020. It expects 3.5% and 3.1% from the Romanian economy in 2019 and 2020.