With UK, European and US residential property now showing many signs of recovery, Bill Rawson, Chairman of the Rawson Property Group, was recently asked if he still holds the view he propounded in 2009 when, in a widely reported statement, he said categorically that an investment in South Africa would, in his view, almost always be preferable to one in any of the First World countries.
“My views remain much the same as they were in 2009,” said Rawson, “and they are reinforced by the fact the cost of overseas property in Rands today would be prohibitive for many of the smaller South African investors – who in addition could conceivably later lose out if the Rand eventually strengthened. Those who did invest in offshore property in 2009 have benefitted by the depreciation of the Rand. However, if they wish to bring this money back into the country, they will be taxed on the exchange rate profit, if any.”
More importantly, said Rawson, the real returns usually given in sophisticated First World countries, even allowing for their inflation rates, are by any standards “unspectacular”, with 2% to 3% being the average.
Local is lekker
“Here in South Africa,” he said, “residential property now averages an 8% to 10% return – higher in high demand areas – and it increases in value by a similar amount each year. Granted that, in real terms, this is not impressive, it is at least inflation-beating and our experience is that over a 10-year-plus period, rentals will inevitably creep up to the point where they are, in fact, close to a 12% to 15% return, even on the enhanced value of the property.”
However, said Rawson, his prime objection to overseas property investments is, as many British discovered in the Spanish and Portuguese coastal property boom, that the South African investor will always, to an extent be, “flying blind”.
“Brochures, prospectuses, financial projections, plans and graphs are, let’s face it, just paper. Anyone who has invested in South African property knows the value of being able to visit the property – or visit the site if it is a new development. He will also know the supreme value of longstanding reputations on which he can rely and of having access to a well-informed investigatory network which has the power of unearthing the weak or shady spots in previous careers. A few enquiries in the right quarters will reveal whether or not the person making the proposition can be trusted and this inside information, so easily obtained in the South African business community, is invaluable.”
Get personal with your agent
By contrast, said Rawson, the South African investor looking to buy, say in the UK or France, will probably find themselves having to deal with lawyers, sales people, rental agents and owners whom they never previously met or worked with. It has happened, he said, that such people collude to get as much as possible out of the foreign buyer and give as little as possible in return.
Then, too, the property law in their countries is likely to be far more complicated and cumbersome than it is in South Africa, which, with all its faults, is still investor-friendly. Capital Gains Tax overseas is also likely to be more punitive than here in South Africa.
“I freely admit,” said Rawson, “that some South African property investors have gone wrong and lost money. However this, in my experience, is very often due to their being too confident, trusting their own business instincts without using reputable and reliable people who have been in the business for many years and who have reputations to protect. Such people do know the market – and the weak points in it – and property investors should team up with them and make the most of their in-depth knowledge and the advice they can give.”