How to Save (or Make) R10 Million

Private Property South Africa
Scott Picken

There are three types of people in the world...Those who make it happen...Those who watch it happen...Those who wonder what happened..." - which are you?

I recently worked with an investor who bought four units in London. One of the fundamental laws in property is to make sure you buy from a motivated seller to ensure that you get below market value properties. IPS had a developer who was offering a 26% discount from the prices in 2007. However, we knew they were determined to get a few more sales to get their bank funding and so we managed to negotiate a further 15% discount for our client as long as he invested in 4 units. That is a saving of 41% or roughly £672,400.00 which, taking the average exchange rate, is over a R10 million saving.

This is on the backdrop of marketing conditions which are changing. The most respected property index is the Financial Times Property Index which references all property in the United Kingdom. In their most recent report (May 09), Dr Peter Williams, Chairman of Acadametrics said, “On an annual basis, the average price of all completed transactions in England and Wales is now 14.2% lower than a year ago. All ten regions in England and Wales are showing prices falling on an annual and monthly basis.”

Martin Gahbauer, Nationwide's Chief Economist, said, “The price of a typical house rose by 1.2% in May, providing further evidence of some improvement in housing market conditions over the last few months. At £154,016, the average house price is still 11.3% lower than a year ago, although this marks a significant improvement from the annual decline of 15.0% recorded in April. The 3 month on 3 month rate of change – a smoother indicator of short-term price trends – rose from -3.0% in April to -0.5% in May and now stands at its highest level since January 2008.”

The most important element is the income component. You need to be buying property in a good area with good rental demand. There are great yields at the moment – anywhere up from 6%, with low borrowing costs starting at 3.85%, which ensures great cashflow positive properties. If you focus on income and have a great cashflow, then the fact that you bought off a very low base will ensure a great investment in the future when the banks start lending properly again to the man in the street and the market recovers.

Until this time, foreign investors are taking huge advantage of the opportunities available in the UK, and in particular London. In the past 2 weekends, developers have sold over 100 apartments to investors in Hong Kong alone as an example. The reason for this huge demand is the weakness of the Sterling and most importantly the fundamentals of the investment opportunities.

For South Africans, over the last 12 months the Rand (6.53%) has been one of the best performing currencies against the US Dollar, where both the Pound (19.43%) and the Aussie Dollar (17.18%) have devalued. Now is a fantastic time for South Africans to really take advantage of the strong Rand to invest in first world assets, income and currencies at great values! Scott Picken says, “I do ask people when they say they are worried about the market. Is there more chance of the Rand devaluing by 10% or the property market devaluing by 10% further in the future?”

Finally, many developers have their yearend in the next few weeks and it is very important for them to finalise sales before their accounting periods end. Now is one of the best times of the year to be negotiating with developers as they are very motivated sellers. There are some great opportunities coming to the market!

Go to www.ipsinvest.com to find out about the next seminar / webinar where Scott Picken, CEO of International Property Solutions (IPS), will be sharing his experience of everything he found on his recent trip to London and most importantly the opportunities which are available.

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