Are we on the offshore property hedge?

Aerial view on Saint Julien and Spinola Bay at Dawn, Malta
Aerial view on Saint Julien and Spinola Bay at Dawn, Malta
Andrey Omelyanchuk

Potential offshore property investors would have been upbeat when the offshore investment allowance was increased in April. But a commodity crisis and weakening economy have turned the rand’s buying power to custard, making an offshore investment now nearly 12% more expensive than it would have been five months ago.

That only includes the ground lost against the major currencies, in particular the dollar, not inflation. Whichever way you look at it, an offshore investment is not going to come cheap.

Add to this the possibility of South Africa being downgraded to junk status by the credit rating agencies and further pressure on the currency as a result. For most locals, the ability to invest offshore would probably be all over bar the shouting. 

People around the world are buying up property in countries other than their own and for many of them it’s about diversifying their investments, generating income and spreading risk.

But for others it’s more about ‘land banking’, getting money out of their country into hard currency property assets. For South Africans, who have to deal with a soft currency, understanding the principles of risk diversification to ensure that wealth preservation does not evade them is even more crucial.

Perhaps we should be taking our lead from SA’s listed property funds. Not only are they looking for decent returns to pass on to their shareholders and an income stream in hard currency, but more importantly they are looking for capital preservation. And that means investment into First-World countries.

What are the listed property funds doing?

So where are they investing? Predominantly in the UK, Australia and Germany. JSE-listed real estate investment trust (REIT) Growthpoint Properties’ investment in its 53 Australian properties is valued at R22bn, while Redefine Properties has around R8.4bn invested internationally in Australia, UK and Germany.

Meanwhile JSE-listed capital growth property fund Attacq Limited recently tapped into the Eastern European market, acquiring retail assets valued at €195m (R2.9bn) in Cyprus, which belongs ?to the EU.

First-World investment headlined at Wealth Migrate’s recent Wealth Movement event as did the importance of diversification and partnerships. And while real estate crowdfunding as a source of investment piqued the interest of local investors, (see finweek 9 July 2015 edition, Using the power of the crowd in property investment), until approval is obtained from the Financial Services Board (FSB), South Africans may well be cautious about the movement.

Active diversification, say those in the know, is the key to wealth growth. That includes the growing of a global portfolio. "If 100% of your net worth is in South Africa, you are doing something wrong," says Dr Dolf de Roos, author, investor and educator.

This is an excerpt from an article that appeared in the 5 November 2015 edition of finweek. Buy and download the magazine here

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