Property is a local asset class, its opportunities and risks largely governed by local conditions. No matter how experienced you are as a property investor in SA, you will be lost in Paris, for instance, with its morass of local laws, conventions and municipal controls.
Yet growing demand and investment sophistication mean that property is going global. For example, the UK company Fleming Family & Partners has been buying office buildings in Moscow and Johannesburg. US property funds are listing on the Australian Stock Exchange.
There are two reasons for this. First, growing professionalism in the property industry and benchmarking of performance and methods by organisations such as the Investment Property Databank (IPD) makes the transition from one country to another easier than in the past.
Second, investors who would be buying property at home find demand for property is so strong in their countries that property yields have dropped to the point that they are no longer attractive.
So capital is moving globally and up the property investment risk curve. The lower the risk, the lower the initial income yield on the investment. As the risk rises, so does the initial yield. This is taking investors to places they would not normally go. And as large capital gets to know markets, the risk premium falls, and so do the cap rates of the property investment.
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EXCHANGE CONTROLS
Government is steadily lifting exchange controls, companies can invest offshore freely and do not have to repatriate dividends. Individuals are limited to R2m. The promoter or manager of your investment will usually make the arrangements on your behalf.
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EMERGING OPPORTUNITIES
Developing countries are responding to this new demand by creating the properties - usually large office, industrial and retail projects - that have the same sort of tenants and perform in the same ways that properties in developed markets do. Both individual and institutional SA investors who want to diversify offshore will discover an increasing array of understandable property investments on offer from countries as diverse as South Korea, Costa Rica and Lithuania.
Until now, offshore investment by South Africans has been more about the falling rand and Afropessimists' fears for SA's future than about investment fundamentals of offshore property.
But, with property yields falling below 10% for the first time in many years and exchange control for SA companies all but gone, SA investors can now start looking for comparable yields around the world. Local property service organisations are preparing for growing two-way investment between SA and the world.
Colliers has had international connections for years, but late last year Finlay & Associates joined a similar international property service group, NAI. As this handbook was going to press, Broll, SA's largest service group, was about to buy CB Richard Ellis, which has offices throughout Africa, giving them continental reach and membership of one of the top international service groups.
PURCHASING IN EUROPE
Credo, a UK property group run by South African Gavin Rabinowitz, offers investments in Germany with yields around 7% - similar to SA-listed funds.
There are also signs of SA property service companies doing business totally outside SA. For instance, JHI chairman Les Weil says his company is advising clients in Europe on purchases in Europe.
An important reason for diversifying a growing portfolio into other countries is that they are usually at different stages of the property cycle at any one time. The income stream of a fund diversified into five or six countries will be more steady than if the portfolio were in one country.
Britain has been the natural first destination for SA investors.
London was the third-largest investment subclass for South Africans a few years ago, after local residential property and institutional investors.
Residential investment slowed down as prices started falling. Yet it remains one of the prime places in the world to invest in the long term. And commercial investment in the UK has continued. SA investors have gained from an unexpected buying frenzy, mainly from European funds looking for steady income at reasonable yields, despite rising interest rates.
DRAMATIC OFFSH0RE DEVELOPMENTS
Credo regularly offers investment opportunities, as do the UK offices of SA groups Coronation, Louis and Pam Golding.
Most dramatic of the offshore developments is Dubai, the city-state in the United Arab Emirates that has decided to head off an economic crisis when its oil runs out by making itself the business, property and tourist destination of the region on a scale never seen before. About R250bn is already committed to creating four giant, man-made islands - Dubai's a bit short of coastline - with hundreds of hotel villas and doubling the city state's tiny 40 km coastline. Dubai is a geopolitical play, built on the funds flowing out of the US and Europe as wealthy Arab and Eastern investors move away from a war on terror that increasingly targets them.
But despite the growing choices, South Africans' best bet is still probably Liberty International - the third-biggest listed UK property company, headed by Donald Gordon and listed on the JSE.
It has one of the finest property portfolios in the world, mainly large super-regional shopping centres at key pitches in the UK, and has outstanding management. And you can buy shares in it locally without bothering to get exchange-control approval.
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CURRENCY RISK
The minute you invest outside the rand monetary area, your property investment carries the added burden of currency risk. For years, the rand has been volatile, needing extra time and expertise to allocate and manage your capital. Better fiscal management of our economy by government and rising foreign reserves mean that the volatility could slowly subside over the next few years. But a currency risk will always remain. Many South Africans, watching the Irish pour money into SA property, are beginning to think that diversity can wait until the rapidly growing local market has matured.
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