Global investment in real estate reached a record high of $1.62-trillion (R21.3-trillion) in 2017. Last year’s record volume of traded real estate and the prices achieved will be difficult to maintain but there is little reason to fear any sudden reversal in 2018.
Keillen Ndlovu, head of Stanlib Listed Property and portfolio manager of the Stanlib Global Property Feeder fund and the Stanlib Property Income fund, has highlighted 10 reasons to consider investing in offshore property.
Exposure to more than one property and country adds diversification to a portfolio, which reduces risk and volatility and can enhance long-term returns. International markets can offer both stable returns from well-established properties and growth opportunities from new properties and sectors.
2. Access investor-friendly flexible structures
Google “offshore property” and you’ll find a lot about buying a house in a foreign country. Investing in offshore property offers a lot more opportunity. Real estate investment trusts (Reits) are available to international investors. The South African property market is young and relatively small, with about 25 listed Reits. There are more than 200 publicly traded Reits in the US alone.
3. Benefit from economic growth
SA’s economic growth outlook is lower than it has been in many years. International exposure can offer investments in regions with higher growth prospects.
4. Invest in new trends as they happen
In offshore markets, the growth in industrial property such as warehousing, logistics and storage is greater than in SA. Online retailers in international markets need more space, indicating a higher potential for rental growth. There is also growth in co-working and flexible office work spaces.
5. Currency diversification
Investing in foreign property in an offshore investment means you earn foreign currency in the form of distributions. As an extension of an investment portfolio diversified by asset class, diversification by currency has merits too.
6. Use local expertise to diversify
The South African listed property market is home to expert property investment skills. As the sector has grown, many have added global property exposure to their product offerings. If direct offshore property investment is daunting, you can invest in an offshore property fund run by local fund managers.
7. Limited space, high demand
Due to the limited availability of property in the major regions, including capital cities, demand remains high and resilient. The Cheesegrater, London’s tallest building, was bought by a Chinese consortium for £1.15bn (R20.3bn) in October last year, 26% above its valuation price the month before.
8. Sovereign risk
International investments in stable regions with good sovereign credit ratings make sense for investors in less stable areas. This is not only a good diversifier – stable, developed regions have long track records of upholding investors’ rights such as protection of property rights.
9. Returns and protection
Aside from diversification as a benefit, investing in offshore property offers good potential returns. For the five years ending May 31 2018, the Standard & Poor’s Developed Reit Index delivered an annualised return of 11.3% in rand – a noteworthy return when local property markets returned 7.9% over the same period.
10. Is your offshore portfolio diversified?
Offshore investing is not just another asset class. To deliver long-term returns, it needs to be diversified beyond offshore equities and bonds, and that means considering adding a property component too.