Seven signs potential investors should look out for when building a diversified portfolio that includes overseas property.
If you are thinking of investing some of your wealth outside South Africa, you need to know what you are doing because experts say it is not always easy to predict the future growth of a sector of a foreign property market.
Research and timing are critical to the process, says George Radford, head of Africa at IP Global.
He has come up with seven signs potential investors should look out for when building a diversified portfolio that includes overseas property.
* Population: A young, growing population is an indicator of demand and suggests there will be an increasing need for homes. If the number of houses being built in an area isn’t enough to meet demand, this indicates an ideal market from an investment perspective. As long as demand exists, it’s an indicator that capital values of properties may be expected to increase. It may also indicate a long-term scarcity of rental properties, pointing to potential for rising rents (and increased rental income for investors) over time.
* Employment in industries of the future: Areas with booming industries often create new jobs. Investors should seek areas where employment sectors of the future appear to be taking off, such as technology, digital media and medical research
* Vacancy rates: Are empty properties rare? Do properties for sale or for rent tend to be snapped up quickly? Investors should ask these questions because they provide a good sign that both the sales and rental markets are growing.
“Crucially, it’s also a sign that if one tenant leaves, your potential investment property is unlikely to stand empty for long,” says Radford.
* Regeneration and infrastructure: The investment case for areas under regeneration, such as the UK’s Birmingham, is often much stronger than in more established areas. There’s often more scope for capital value and rental income growth, while a lower price makes them more accessible for investors.
* Connectivity: Investment in transport infrastructure is usually a reliable sign of future growth. Safe and reliable transport links can draw a working population into a central business district, and neighbouring areas are often likely to benefit from an increased demand for accommodation.
* Amenities and institutions: From big corporate offices through to university campuses, an area’s character tends to be shaped by the institutions already there.
A respected university with a large international student base may drive strong rental demand in surrounding areas. If the area is starting to earn a reputation as a home for certain industry sectors, or if corporates are increasingly building a presence there, it could be a positive sign for the rental and sales markets.
* Unique factors: Investors often ask what makes an area special. It could be it is capitalising on its industrial heritage, reinventing itself as a cultural hub, or emphasising the charms of waterside living.
Radford says South African investors typically prefer to purchase buy-to-let international residential properties for diversification and capital protection purposes, as well as income-producing assets, because they are more tangible than other property investments, such as property funds.
New high-speed railways, increased government spending in a region, and continued population growth all combine to drive demand in a particular area – providing a compelling argument for investing in property there.