THERE are definite opportunities for South African-listed property companies to acquire commercial properties offshore, particularly in the UK.

However, there a number of hurdles to overcome, says Anthony Diepenbroek, CEO of property loan stock company iFour Properties. One such hurdle is exchange control restrictions: a South African company is allowed to take only R1bn offshore to expand its businesses, which must be first approved by the Reserve Bank.

"They have to prove to the Bank that it's an expansion of local operations and that South African skills are being exported there," says Diepenbroek.

Once these legal issues are sorted out, there are opportunities to acquire properties with leases of between 15 to 20 years.

"The yields on those properties in pound terms are 7% and the cost of finance offshore is about 5%."

However, Diepenbroek says there is an exchange risk.

In SA an investor will look at opportunities to invest in property funds that have yields of between 11% and 12%. Liberty International is trading at yields much lower than this, Diepenbroek says.

Despite the obstacles, it is apparent that South African investors are willing to pay a premium to invest in a company that has solved those problems and acquired properties, says Diepenbroek. "Obviously they are investing in Liberty International because of the sustainability of the income and randhedge opportunities."

Diepenbroek would not comment on whether iFour would look at pursuing offshore investment opportunities. However, at the time of its listing in June 2002, he said the company wanted to a have a percentage of its income coming from a nonrand base as part of its longterm goal.

Independent property analyst Liliane Barnard points out that one danger in offshore investments is that if SA's interest rates start to rise, local property companies would not be able to buy offshore properties because of dilution of earnings. Even now, with interest rates at current levels, Barnard says there is too much dilution in earnings.

"It's all interest rate-dependent and if we continue to have a lower interest rate environment, then I would say it's time for local firms to look offshore."

However, economists expect interest rates to remain flat for the next six months before they rise again.

Feb 11 2004 07:42:51:000AM Nick Wilson Business Day 1st Edition