South African investors are becoming more amenable to investing in property overseas as they recognise the need to move money offshore. While it’s certainly a key investment strategy as part of a diversified portfolio, as with any investment there are potential pitfalls. If you’re about to take the property leap, consider this checklist before you get started.
1. Identify your objectives
To draft a strategy, you first need to determine your objectives. Are you looking for a buy-to-let, purely as an investment, or is this a property you would like to visit regularly for business or leisure? Perhaps it’s a property for your retirement or for your children if they study overseas. If so, what are your timelines? The best returns will be seen after 10 to 20 years.
2. Do your research
Research is key and if you’re not sure where to look or what to look for, find a property investment firm that can guide you. Areas to consider: What is your risk profile? Which country and area appeals to you? What are the tax implications in that jurisdiction? With any foreign assets, you need to consider the tax position on those assets - on the income as well as the administrative position on death. Once you understand these elements, together with your objectives, you can narrow down your strategy.
3. Consider your preferences
Are you buying off-plan or investing in an existing development? If you’re in it for the long-term, off-plan investment has some unique benefits. Typically purchased in the construction part of the building process, investors can purchase property at a discounted price - so you’re buying at today’s value and only start paying for it once the development is complete. Know your options upfront , the returns, the capital investment required and the supply and demand in the area you’re interested in - the cornerstone of any property investment is the tenant demand.
4. Have you got the funds?
The costs of buying property are substantial – stamp duty in certain countries, legal fees, mortgage payments. How do you plan to fund your offshore property investment? Are there leveraging options available? In many cases it makes more sense to borrow offshore as the interest rates are considerably lower, but there are many regulations. Does your budget extend to maintenance and potentially a rental agency? Ensure you have full visibility of all costs you could incur. If you are moving funds offshore now with the aim of purchasing property, consider using a specialist FX broker as they can usually offer a more competitive exchange rate than your bank. If you already have funds offshore, do they require any notice to access?
5. Have you found the right advice?
Surround yourself by experts – from a wealth specialist or financial advisor to a tax specialist, as well as credible developers and trusted rental agencies. Do due diligence on any projects, developers you plan to engage with. And then get a good lawyer to check everything out for you.