FOREIGN AFFAIRS - JSE MAGAZINE

FOREIGN AFFAIRS

Overseas property purchases are proving to be a popular investment for wealthy SA citizens, and the possibility of gaining a ‘golden visa’ increases their attractiveness

FOREIGN AFFAIRS

SA investors find offshore property purchases so attractive as they look to diversify their portfolios and buy in hard currency, says Chris Immelman, MD of Pam Golding Properties’ international division.

‘It is mainly externalising funds as an asset and also as a rand hedge,’ he says, adding that the benefits of global property investment include ‘playing in international markets’, as buyers benefit from the upturn in international investment times.

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty says that in the current climate of ‘political disarray’, the future is unclear to many.

‘People are weighing up their options. For that reason, they are seeking refuge in places like Mauritius, which is offering permanent residency, and the Seychelles. Buying abroad is dollar-based, so it’s a hedge against your currency. I think that if you buy the right proposition and get your capital growth and it’s a buy-to-let situation, you can do quite well.’

Geffen says that there has been about a 30% increase in South Africans’ interest in overseas properties in the past year, starting from mid-2014 to date. ‘The exchange rate seems to be receding daily, which is also motivating people, so there is a kind of urgency to make your move now.’

Immelman says the property investment landscape has changed over recent years, particularly with regard to areas of interest.

‘I’ve been looking after this division for the last 14 years, and in years gone by, people were very London-centric, with most looking to make offshore investments in property, starting in London.

‘But the reality is that London has become extraordinarily expensive; off the charts even. In light of this, we have brought some very interesting offerings to the table that have been of great interest to South Africans, such as Brisbane, Miami, Berlin, Portugal and others. But by far the most interesting has been in offshore property investments that come with a residency component.

‘So many people are disillusioned by the political climate in South Africa today and are looking for alternatives. If you acquire property in certain jurisdictions overseas and you’re able to obtain residency, that doesn’t necessarily mean you’re going to move, but it does give your children options to study, live or work in those places.

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By far the most interesting has been in offshore property investments that come with a residency component

‘Nobody is turning their back on South Africa but people are creating options. Buyers are looking for something that offers good yield, and if it will gain them residency, then the product becomes very appealing.’

Immelman notes that good jurisdictions for this include Portugal, Mauritius and the Seychelles.

‘Mauritius has always been a very strong market for South Africans because it’s close. People know it and can go there often, and it remains solid and strong. Currently there are huge regeneration projects taking place in Lisbon, Portugal.

‘Coming off a very low base, where the rate per square metre is well below peers in other western European cities such as Rome or Vienna, makes Lisbon a very interesting place to invest. And if you spend €500 000 or more, you qualify for the Golden Residence Permit Programme (or “golden visa”) and residency. For South Africans, this is the cherry on top.’

Andrew Taylor, vice chairman of Henley & Partners, a global residence and citizenship planning firm, says citizenship and residence via investment programmes are becoming the preferred type of property investments for many affluent South Africans.

‘There are definitely good opportunities to make money from such investments, but you get the added benefit of another passport too.’ He says Cyprus is a popular option for real estate investments.

‘For €2.5 million, you can get citizenship in Cyprus within 90 days. You are then part of the European Union and can live, study or work anywhere in Europe. Citizenship programmes allow people to keep living in South Africa, as they don’t want to relocate, but still obtain citizenship for themselves and families. Residence programmes are for people who want to leave.’

The amount needs to comprise either a single, substantial property investment, or a minumum investment of €3 million across several properties.

Taylor says around 90% of individuals choose between Malta and Cyprus for the EU, and between Bermuda, Antigua and Barbuda, and St Kitts and Nevis in the Caribbean. Portugal is also a popular residence-by-investment option as it provides
a path to citizenship over a six-year period.

James Bowling, CEO of Monarch & Co, which offers immigrant investor programmes and investment property advice, agrees with the popularity of Cyprus and Portugal. In the former, he says, the ‘property market offers positive capital growth prospects’ with the added bonus of a quick route to citizenship. ‘The UK and US are especially attractive choices for South African property investors as they tend to be hard currency investments offering some of the best returns in established markets,’ he says. ‘In addition to the market stability in these countries, there is a sense of familiarity, as many South Africans have travelled there and have friends or relatives living there.’

According to Geffen, ‘easy’ markets such as Mauritius and the Seychelles hold the most appeal for SA investors. ‘I know that Dubai is also giving good deals at the moment. Anywhere in Europe is expensive, as property markets have generally recovered in those areas since the recession. The South African investor has got to have big bucks to buy in places such as London, New York and Europe in general,’ he says.

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‘For €2.5 million, you can get citizenship in Cyprus within 90 days. You are then part of the European Union’

ANDREW TAYLOR, CHAIRMAN, HENLEY & PARTNERS

Immelman refers to the way the rand exchange rate affects investors as ‘interesting’. ‘At the top end of the market, people have got enough money and want to start externalising funds,’ he says.

‘Whether you wait for it to soften and for the rand to strengthen, that’s anybody’s guess. Every time we see movement in the exchange rate, we see activity in the market one way or the other.’

He explains what he considers one of the best investment opportunities to hit the market in five years: ‘In the commercial space in the UK at the moment, we’re selling dental properties to South Africans. What this means is that you buy a cottage, which functions as a dental practice in a small town in the UK, such as Brighton, Portsmouth or Hull, costing between £250 000 and £280 000, and which is rented by a corporate company that owns hundreds of practices. They want the practice but not the property. The corporate signs a 20-year head lease and you gross a 6% to 8% annual yield, which is very high by international standards.

‘In addition, the leases are fully repairing or triple net leases, which means that the tenant looks after the maintenance and upkeep of the building.’

Janke Strydom, an associate in the real estate department at law firm Cliffe Dekker Hofmeyr, says that from a legal standpoint, it is important to know that there are no fixed legal rules that apply to all jurisdictions when acquiring property abroad.

‘Laws governing property and foreign ownership of property vary from country to country, or in the case of countries such as the US or Australia, from state to state. It is imperative to obtain legal advice from an attorney practising in that specific jurisdiction and to instruct that attorney to conduct a comprehensive due diligence on the property you wish to acquire.’

Immelman says it is very important to research diligently and seek good advice. ‘If you overpay for a property, you aren’t going to make it back, no matter how good your returns are.’ He says it is also imperative to consider the rentability of an investment and scrutinise the country and area in which one is buying on a micro level, including the political, social and economic situation and taxes.

Geffen agrees, saying that as with any property investment, the more you do your homework, the more informed you will be. ‘That means looking at the whole spectrum of properties, comparing values, establishing good relationships with estate agents or developers, and not rushing in.’

By Toni Muir
Image: Fredrik Broden/reneerhyner.com