Savvy Buyers Guide to Investing in the UK from South Africa
After attracting widespread investment across the globe, the UK remains a top target for investors due to the stability and consistent returns it can provide. According to the SevenCapital Brexit Survey 2018, 92% of South Africans (SA) believe the UK market will be ‘good-to-strong’ in 18 months time, demonstrating the appeal it still holds overseas. With the same question of market performance posed over three-to-five years, 70% of South African respondents still believe in the strength of the market. In fact, 7 in 10 of SA respondents cited Brexit as a reason to invest, highlighting the opportunities available when it comes to leveraging foreign exchange against a weakened Sterling. As more SA investors look to the UK, here are the top five things you need to know about investing from South Africa into the UK market.
5 things you need to know about investing in UK Property from South Africa
Strategy is Key
As with any investment, outlining your goals and strategy before you invest is vital. It’s important to have a plan that is long-term, achievable and personal to you. Achievable is the key-term here – by having an actual vision you can realise, you make each step of your investment journey more effective as your decision-making will be tailored to achieving these goals.
At this point it’s important to consider the finer details of your investment. Consider the location and demographic that you’re looking to invest in. Do you want to target established young professionals in a city-centre, students in an emerging market or families in an outer suburb?
For the UK market especially, where ‘lesser-known’ regional cities and towns are leading the way, performing this due diligence is vital. Having a trusted partner and advisor can mitigate issues further down the line as they can provide expertise and support where necessary.
Finally, think about your holding pattern. Are you going to buy and sell immediately? If so you’ll need a different strategy compared to someone that is renting a property out for 15 – 20 years. A strategy focused on rental yields, for example, will fit a longer timeframe and should be a priority for any investor.
Supplementing Your Investment Goals
Investment can be a fantastic way of supplementing other income streams to reach your financial goals. Over the long-term, the idea is that the investment pays itself off before delivering income, rather than offering pure profit straight away. Most investors will do this to ensure that over a longer period, they’re maximising value.
If you’re utilising a long-term strategy – which is common for Buy-to-Let investors – it’s important to remember that the longer your investment is delivering returns the better. The UK market has a history of delivering incredible growth and past performance data from ONS shows that over 15 years, the average UK property has typically doubled in value.
When you consider this level of growth alongside consistent rental yields and a reputation as a robust sector, it’s difficult to argue against what the UK market can do for investors.
Take Tax Considerations into Account
Understanding how tax will affect your investments is vital for reaching better financial outcomes. As an investor, you want to invest in the most tax-efficient manner – minimising the amount of tax your paying and maximising the benefits.
South African investors choosing the UK will typically follow the basic tax rules of being taxed on UK income at a 20% rate. Another change to tax rules that affects expats is due in March 2020. It states that South African residents abroad will be required to pay a tax of up to 45% on any employment income earned abroad that exceeds R1,000,000.
Different tax structures apply to different investments and its vital to understand the tax implications of the country and asset you’re investing in before undertaking any purchase. Having a deeper understanding of your finances means that you can better plan your long-term investment journey.
Diversification Can Help You Scale and Succeed
The cornerstone of any investment is diversification. It allows an investor to avoid placing all of their money on one investment and is vital for spreading risk. For South African investors, a UK property investment can be a great way of diversifying in a new locale, ensuring a portfolio that isn’t dependent on one market.
Before you diversify, make sure you identify your different goals and adopt investments that best suit those objectives. Consider partnering with an expert – they can offer more personal advice, more about the market and experience that may be vital for a successful investment.
Diversification can also help you scale quickly. Once you have one investment in place, consider how the returns from that investment can be re-invested and pushed into new assets. Leveraging, for example, is how you can use the equity in an investment to purchase another property. If that property is Off-Plan property for example, you can benefit from lower rates and natural market growth experienced between purchase and completion.
Always Consider The Element of Risk
If you’re investing, it’s vital to consider that with the potential for reward, there’s also a potential for risk. The higher the possible returns, the higher the relative risk. While the South African market is going through economic struggles, the UK market remains relatively stable – in the SevenCapital Brexit Survey, 42% of all respondents turned to the UK for strong yield performance while 32% prioritised market stability.
It’s important to remember that the research and due diligence you perform during your investment will ensure you mitigate challenges further down the line. The more you can do to avoid risk, the easier and more consistent your investment will be.
As with any investment – whether you’re an international buyer or a domestic investor – the important thing is to remember that due diligence, and having trusted partners, is a surefire way of reducing issues further down the line. Proper research will ensure that you have a quality location and a quality product will always attract premium tenants, which typically translates to the consistent, market-leading yields that can help investors reach their goals.