Here is a five-step checklist to get you started in investing in offshore property and some pitfalls to watch out for.
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Determine your objectives and the best strategy to meet them. Are you looking for a property you’d eventually like to retire to, a property you’d like to visit regularly, or is it purely an investment? It’s important to consider your budget, risk profile, timelines, family goals, tax strategy, comfort levels and investment preferences. Once you have set these, they’ll help you form your own personal checklist when looking for the right investment.
Do not underestimate the importance of doing good research, it’s the most important starting point. Look at the micro and macroeconomics of the areas you are considering. Research the options, the returns, the capital investment required and most importantly the supply and demand in that area. Use reputable companies to assist with your research and make sure that you do your due diligence on any projects and developers you plan to engage with.
3. Moving funds offshore
Do you already have funds offshore? If so, do they require any notice to access? If you do not have funds offshore, you will have to apply for tax clearance. You should also look at the best ways to move your money at the best possible rates. The rand is a volatile currency and, for most people, greatly affects what you can afford to buy offshore. Know the rates and look at using a specialist FX broker as they usually offer a more competitive exchange rate than your bank is likely to give you.
How do you plan to fund your offshore property investment? Will it be a cash purchase or are there any leveraging options available? Borrowing offshore makes sense as the interest rates are considerably lower, but it is subject to strict criteria so do your research and find out if this applies to you.
5. Use the experts
Arm yourself with expert advice and as many tips as you can. Speak to independent advisors who do not work for one specific developer, to get important, unbiased information. Most independent companies also have considerable local knowledge and years of experience in the markets they specialise in, which is invaluable. Tax specialists, investment experts and your wealth manager may also be able to point you in the right direction and help to determine the best route forward to reach your own financial goals.
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Pitfalls to watch out for when investing offshore
Watch out for guaranteed returns. Often developers build these guaranteed returns (which could be genuine) into the purchase price of the property, consequently the buyer is overpaying for the property.
Sales contract. Always double-check that the sales contract actually matches what you're being sold in terms of product and investment outline.
Confirm the payment terms. With most new-build properties there is a series of deposits to be made in stage payments. Make sure that these are clear from the start so there are no surprises or unexpected calls demanding money. Many developers do have very attractive payment plans, some of which we have negotiated to suit our South African investors.
Do not assume that you'll qualify for financing. While you may suit the criteria to get a bond in South Africa, that does not necessarily mean you will get one offshore. To have the best chance of achieving those low interest rate bonds available overseas, make sure you have the best advisers in the country you are hoping to invest in.
Hidden costs. Make sure you have full visibility of all the costs involved. These include the transaction costs, acquisition costs, FX costs, home-owner running costs, maintenance, levies, insurances and management fees.
Who is the developer? Even the most unscrupulous developers can slip through the net. Do your own due diligence and only buy from the best developers with a long and proven track record building or selling the product you're investing in - developers who deliver on time with the returns and occupancy rates they've promised. The market is saturated with developers flying in and selling directly to South Africans. Be sure to work with an independent advisor who has access to all of them and can advise you in line with your requirements.
Exit strategy. Make sure that the property you’re investing in offers you the exit you are looking for. This should determine whether you purchase it or not. Some properties come with fixed guarantees that lock you in, others are only saleable to certain buyers, and some are locked into syndications. Check the title deeds and figure out what your exit would be in the worst-case scenario.
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