With the new exchange control allowance of four million rand per year for South Africans, UK commercial property is now a more viable investment option, said Broll Investment on Tuesday.

"It is an opportune time for South Africans to invest in UK direct commercial property, particularly due to the relative weakness of sterling compared to the rand, as well as the enhanced access that has been unlocked by the new higher exchange control limits," said David Adams, a broker at Broll Investment.

Commercial property capital values in the UK fell by between 40% and 50% from peak to trough in the current cycle, explained Adams. These capital values then rose in the latter part of 2009 and during the first half of 2010. "It is estimated that pricing has recovered by 20% to 30% from this position," he said.

Since the UK's general election, the amount of activity in the market has reduced and values have stabilised.

"The prospect of rental growth exists in central London and other parts of the UK over the next five years as rents recover following the downturn," Adams pointed out.

Adams explained that Broll's register of UK investment-grade properties often have lease structures in excess of 10 years, and that these leases are fully repairing and insuring (FRI).

"This makes 'passive investment' from SA possible," noted Adams.

While the availability of debt in the UK is generally restricted to institutional grade investments with strong property fundamentals, the all-in cost of debt, based on a five-year fixed rate, is available at attractive levels of between 4.5% and 5%.

This means that direct commercial property can be acquired for yields significantly above the cost of funding.

Source: I-Net Bridge