Pam Golding Properties Intellectual Property
magazine on 2009-06-26"color:#ffffff" href="http://www.pamgolding.co.za/" target="_blank"> Pam Golding Properties Intellectual Property
magazine on 2009-06-26" />
London calling

A strong rand, weak sterling and plummeting UK property prices provide South Africans with opportunities and choice in London apartments…

The stronger rand has awakened sharp South African investors to the opportunities this presents in terms of externalising their foreign investment allowances — often with the intent of buying overseas property.

An apartment in London, for example, has become a tempting choice. Although property in the British capital has not crumpled to the level of the UK in general, even in prime central London prices are still way down. London prime central, for instance, saw prices fall by 17 percent through 2008 while Nationwide Building Society reported this month that average UK prices are down 15 percent from 12 months ago.

Property values have also been hit hard by the slide in sterling. Thus potential buyers can take advantage of a triple bonus — a strong rand, weak sterling, and sharply lower prices.

What’s more, the erosion of values of existing London properties has been mirrored to some extent by the prices being asked for apartments in new and existing developments. Pam Golding Properties is marketing a number of such properties which, says Simon Gibb, general manager of its international division, are extremely attractive investments. Furthermore, through its association with Lloyds TSB’s International Mortgage Service (IMS), PGP is able to assist purchasers with mortgages if required.

The average price of apartments ranges from just over £200 000 for a one bedroom unit to around £350 000 and upwards for a reasonably sized two bedroom flat. A furniture pack, if required, comes in at around £8000 to £10 000.

As an indicator of how cash requirements have been reduced by currency fluctuations; a two bedroom unit in the St James Square development, costing £335 000 with a 60 percent mortgage of £201 000, required an initial cash investment (including various costs) of R2.3-million by a South African investor at a quoted currency conversion of R14.50 to sterling — substantially more than the R2-million investment allowance. But, at the current rand/sterling exchange rate, varying between R12.50 to R13, the cash required by the investor comes down to a manageable R2-million (at R12.50) in terms of externalising funds from SA.

Lloyds TSB’s IMS offers mortgage loans to a maximum of 70 percent loan to value (LTV). The minimum loan size is now £100 000, in the currency of the borrower’s primary income. Interest rates vary, but are currently between three and four percent on a 60 percent LTV. However, when assessing affordability, the bank tends to use an interest rate of five percent, or an actual rate if higher, when calculating proposed repayments.

Fees include an arrangement fee of one percent of the loan amount, valuation fee, legal fees, stamp duties (this threshold has recently been raised), taxes and communication charges.

At present, rentals are holding up well for London apartments and will generally more than cover running costs including mortgage repayments, insurance and letting and management fees.

However, a drawback is the fact that Lloyds TSB will not take into account rental income from a property for which it provides a mortgage. Its credit policy states that a client should not depend on rental income to service the loan. So South Africans must be able to prove that they can meet repayments from other sources.

To insure against currency volatility which may affect the LTV ratio, should this occur the International Mortgage Service requires the borrower to restore the ratio by either reducing the mortgage balance or by providing additional security.

South Africa’s currency exchange controls can be a further complication and as a result the bank currently will lend a maximum of £200 000 (70 percent LTV equals a purchase price of £285 000) for a single application or £400 000 for a joint application. As a general guideline clients are allowed to borrow up to five times gross income. Repayments should not exceed 50 percent of net income.

Lloyds TSB affirms that potential borrowers may organise a mortgage before they find a property by applying for a Decision in Principle. This requires filling in the IMS application form and providing the required supporting documentation. There is no charge and the DIP is valid for three months.

Incidentally, Mark Thompson of PGP’s International Division reports that there is considerable interest from South Africans in current developments such as the Chorus, currently under construction in central Wimbledon, six miles from central London. A one bedroom apartment costs £285 000 sterling and a two bedroom £415 000. A £1500 deposit secures with 10 percent of the purchase price required within 28 days.

Another is Wandsworth Parkside. Apartments start on the seventh floor of this ultra-modern block and climb up to 22 storeys, giving incredible views across much of South West London. Prices are from £330 000 but, says Mark, the developer will take offers.