"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 which has been unlocked by the new higher exchange control limits," he says.
Commercial property capital values in the UK fell by between 40% and 50% from peak to trough in the current cycle. These capital values then rose in the latter part of 2009 and during the first half of 2010 and it is estimated that pricing has recovered by 20% to 30% from this position. Since the UK 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. The company'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 South Africa possible," he notes.
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.
"The UK's developed economy and minimal risk is central to it being a sensible diversification destination for South Africans wishing to hedge local investment risk," adds Adams. "The UK has a list of appealing factors, including strong and understandable property ownerships laws. The country is easily accessible from a language, travel, time zone and experience perspective for South Africans, as many South Africans have spent time in the UK and have friends and family living there, making viewing properties more convenient," he concludes.
