Property Reporter

COMMERCIAL property investment in the UK once only the domain of the super-rich and wellconnected is now becoming accessible to ordinary businessmen.

Eric Mounier, who heads a joint venture between Golding Commercial Properties and Athanor Offshore Property Investments, says more South Africans are showing interest in offshore commercial property investment, particularly in the UK. Commercial property has attractive returns and is an acceptable risk, says Mounier.

However, the commercial property market in the UK is very difficult to access.

"To access it you need three things. You need to be internationally connected by a trustworthy network, you need financial backing to be a global player and, thirdly, you need to be credible in terms of having actually completed a few acquisitions yourself," Mounier says.

He says a good agent is only going to sell a building to a performing buyer, and Athanor and Golding provide that access to good commercial property in Europe.

Mounier says the UK commercial market is particularly popular due to low interest rates.

"In the UK what is extremely attractive is they provide long leases (20 to 25 years), which include full repair on insurance."

Mounier also says that leases are unbreakable.

"Southern African investors are gradually becoming increasingly receptive to the lucrative returns that are available through the UK commercial property market albeit on a somewhat exclusive basis, as we prefer quality of investment rather than quantity."

He says their most recent investment offering at Benbow House upon Thames was fully subscribed in two weeks at a total capital investment of £5m, with projected returns of 13% a year, including 4% annual income.

"Our latest investment opportunity, a property tenanted by Palmer & Harvey in Mid Kent Business Park , has a projected return of 67% over five years of 14% a year.

"These high returns are achievable as we structure the project for maximum return and minimum risk," says Mounier .

"Whereas in SA, investment ratios in regard to commercial property are based more on capital growth, in the UK we project our investment portfolios on steady rental returns, capital preservation and enhancement."

He says the joint venture secures the property for the investor. It looks at buildings in a price range between £3m and £12m.

"We arrange the gearing with a UK bank of up to 70%- 80%. The banks won't take anything else as collateral from the investor because they are happy with the stability of the investment in a stable environment," he says.

"With the strong rand at the moment, there is an opportunity to access this kind of building."

However, Mounier hastens to add that the whole world is vying to access these properties and for each building the venture often has 60 to 70 interested investors a very different situation from the South African property market.

However, Johannesburg-based property economist Francois Viruly disagrees about the length of leases in Europe.

"I think that the push towards shorter leases in commercial buildings is a global one. Even in the UK, the 20- to 25-year lease is becoming more the exception than the rule," Viruly says.

However, he also believes there are ample investment opportunities in the UK.

"I feel that as a South African investor you should ask whether the property cycle in SA is out of sync with the UK and the European market. If there is a negative correlation, meaning when we're up, they're down, there is good reason to consider a property portfolio that is internationally diversified."

Viruly says that at the moment he believes that the UK property market, primarily commercial property, is doing well, which also suggests that a local portfolio with a European element to it would have outperformed a South African-focused property fund.

"My only proviso is that if one invests overseas one introduces exchange rate risk, which, if taking into consideration the strengthening rand, would erode your overseas returns in rand terms," the property economist says.

Dec 03 2003 07:23:38:000AM Nick Wilson Business Day 1st Edition