South African financial services company BJM lures investors with a “once in a generation” offshore property offer.
If you’re one of the lucky few with extra rands lying around, now is a good time to invest in the UK property market. So says financial services group Barnard Jacobs Mellet (BJM) and its property specialist partner Cornerstone Asset Management. They believe that the UK commercial property market offers good value thanks to the weaker pound and the extensive re-pricing compared to other markets.
According to the Colliers CRE Real Estate Investment Forecasts Q1 2009, the United Kingdom property market has seen rising yields over the past 24 months as investors have repriced the cash flows from commercial property.
Private investors are looking for a decent return on equity with demand for assets offering long leases. The report suggests that many international investors are turning to the UK as this is the most liquid and transparent real estate market.
Against this background, BJM and Cornerstone Asset Management launched an offshore property investment company, British Capital Investments Limited, to capitalise on value opportunities in the UK property market.
BJM, perhaps best known for its South African stock-broking operation, is aggressively marketing its new offering.
Gary Fisher, director at Cornerstone Asset Managers, says this is a “once in a generation opportunity for investors” and allows investors to enter the UK market at a level that has not been seen available to them for several decades. The UK commercial property market has declined by up to 50% since mid 2007, he observes.
Investors in this new venture need a minimum lump sum of about R134 000 (£10 000) for this five-year term investment which has an extension of a further two years.
Asked why the investment period is five to seven years, Fisher says it is a reasonable period for investment. The fund is mostly targeted at private clients and fund managers.
British Capital aims for an internal rate of return of 10% to 15% a year. The portfolio will consist of a mix of directly held commercial properties and listed property stocks.
Financing of 50% to 70% loan-to -value will be secured in order to enhance capital appreciation. The company expects to initially buy between eight to 10 commercial properties in City of London and West End, with a focus on office and industrial space, says Fisher.
The offer to participate opens to South African investors in mid-July to end of August. Prices of commercial property in the UK have declined by up to 50% due to the extensive re-pricing following the global credit crunch, he says.
The slide in capital values has eased, but more rental weakness may yet be in sight. From an outside investor’s perspective, London property fundamentals today look more favourable than at any time since the early 1990s, says Jan van Staden, chief executive officer of BJM Private Client Services.
South African investors, he reckons, are well placed to exploit the upside potential afforded by current market inefficiency. It “adds up” to a timing, rand hedging, diversification and capital growth opportunity at an affordable level, says Van Staden.
The Knight Frank Central London QI 2009 report states that Central London represents a potential opportunity to foreign investors looking to exploit the weaker Pound. Of the total property investments recorded in the first quarter of 2009, the report found that 40% comprised of private investors.
In West End, prime headline rents fell by 19% with private UK and overseas reported to continue dominating commercial property investments.