Business Day Reporter

THE UK commercial property sector, which saw a significant drop in value over the past year, could now be offering investment opportunities for South Africans.

David Adams, investment broker at Broll Property Group, says this market slumped last year with capital values falling an average 15% since last June, but today it provides an excellent opportunity for South Africans using “offshore allowances or asset swaps” to create offshore assets with current UK property pricing and so gear up with positive cash flows.

Adams says bleak forecasts on rental growth and the UK banking sector’s tightening up on property lending has softened the yields considerably.

“For the first time in years, some properties with long leases and strong covenants have net initial yields higher than their all-in lending rates. In layman’s terms some UK properties, which have long, strong tendencies, have net incomes greater than the repayments on the total costs of borrowing the entire purchase price of the property,” he says.

This offers an “interesting buying opportunity” for South African investors as they now have the ability to buy in a low UK market.

Adams says the South African commercial property market, unlike that of the UK, has not yet been hit as hard by the credit crunch. After six years of strong growth, many South African investors have built up significant equity in the portfolios.

Meanwhile, Fortress Worldwide Real Estate Funds, Fortress REIT and Fortress Special Opportunities Real Estate fund, say that in an unsure market the key to prudent investing is diversifying risks, and there are opportunities in offshore listed real estate markets.

The funds provide South Africans with access points to foreign listed property securities.

“(This month’s) announcement of a further 0,5% increase in interest rates, the ninth hike since June 2006, combined with other local economic factors all stand to impact the performance of South African listed property.

“These risks can be mitigated by including an element of offshore listed property within an investment portfolio,” says Hayden Bamford, CEO of Fortress Asset Managers.

Bamford says the collapse of US investment bank Bear Stearns and takeover by JPMorgan last month provided the backdrop for an “extremely volatile time in the world’s financial markets”.

“Despite the negative economic news, property fundamentals remain strong in most regions,” he says. In addition to sound fundamentals, global real estate offers the South African investor further diversification benefits through various asset classes that he cannot access in the local South African market.

Bamford says that the Fortress REIT Fund, for example, gives access to retirement homes and healthcare centres, property types considered defensive during a down market.

“With historically high yields and stable income streams, many of the world’s leading listed real estate companies are offering good value today, although investors should be prepared to stomach some volatility in the short term as the credit crisis plays itself out,” he says.

Source: Business Day