Disadvantages of owning property overseas

Reinforcing a message recently put out by Rawson Properties Chairman, Bill Rawson, which was mildly skeptical of ‘diversifying’ South African property portfolios into overseas property holdings, Tony Clarke, MD of the same group, said that most South Africans look to the UK for buys of this kind but that market has many disadvantages which have been clearly defined in international property surveys.

The main disadvantages of owning property in the UK, said Clarke, are

1. Returns are low (as would be expected in an economy operating on 1% to 2% interest rates)

2. Capital Gains taxes relative to those in South Africa are high and under the new government are likely to increase to ease the debt burden.

3. A shortage of manpower and of skills at local government level (recently highlighted by a Knight Frank report) and a plethora of ultra-conservative legislation make changes and improvements to properties time-consuming and expensive. They have also severely limited new development.

4. The UK property resale market is currently very ‘unexciting’. The chances of real capital growth in many areas are, right now, minimal because the problems in getting bond finance are many times greater in the UK than in South Africa. Furthermore, the market here will take longer to become buoyant.

“What the British, the Dutch, the Germans, the French and others are seeing is that a whole generation of first time homebuyers is now unable to afford a home of their own and many have given up any hopes of ever doing so. Over 60% of Germans are now rent paying.”

The huge shortage of homes in the UK - only 115,000 homes are built each year for a population that now numbers 62 million – will, said Clarke, ultimately lead to increased rentals - but against this it has to be realised that the UK’s record on rent paying defaults is now serious. This is partly because housing benefits (which the new government is likely to cut) are paid directly to the tenants and not to the landlord and because, too, as in South Africa, the court processes in dealing with defaulting tenants are lengthy and cumbersome.

“All in all,” said Clarke, “I myself would hesitate before buying overseas, even though I do believe in diversifying one’s portfolio. Apart from the difficulties in the market already mentioned, any investor going this route would have to accept that his control of the agent, the tenant and possibly the local lawyer would be weakened by the fact that he cannot deal with them face-to-face. Furthermore, it can take time to become familiar with the property leglislation in any foreign country and experience shows that it can often contain some surprising and very unwelcome conditions of which the South African buyer was simply not aware when he signed for the purchase.”

Article from: www.rawsonproperties.com