Your Bricks and Mortar Legacy Abroad: Retirement Planning with Offshore Property Investment1st Jan 2019
When reviewing your retirement portfolio, it’s wise to consider all the available asset classes – including offshore property. The key, however, is to ensure that you’ve done your homework and sought expert advice.
The economy and the rand have shown stability since President Cyril Ramaphosa took office. However, experts in the property investment arena predict a two-year lag before South Africans see any real gains attributable to Ramaphosa’s government. But the unknown ‘elephant in the room’ is the looming issue of land expropriation without compensation. If implemented in the manner sought by the political left (the Populists), property prices will plummet, and security of tenure will vanish. This scenario makes it an opportune time to take advantage of the steadier rand, and to diversify offshore. Purchasing offshore property presents a double advantage. Acquiring property in a growth economy will result in value appreciation over time and, if required, passive income via rental yields.
The advantages of offshore property as an asset class are extensive – especially for South Africans who feel more comfortable with its stability and tangibility. The benefits include:
- its ability to generate long-term returns
- how it can be leveraged in tier one markets with historically low interest rates
- the exposure it allows to other currencies
- higher levels of consumer protection in developed markets
- a hedging opportunity when investing in economically stable markets in the UK and Europe.
Ideal locations are economic powerhouse cities that offer a variety of lifestyle and leisure activities, great schools, and – for those interested in short-term rentals – a high influx of tourists. As there are tax considerations to investing in offshore property, it is a good idea to conduct research and seek professional advice so that tax laws do not jeopardise the investment. Taxes one should be cognisant of include transfer or stamp duty, capital gains tax, income tax and inheritance tax.
Ocorian can assist with introductions to reputable international property consultancies.
No matter the political situation, South Africans who can afford to invest in property offshore should do so.
This comes with the benefit of growing wealth outside of the country, also providing the safety net of a second residency or citizenship, while offering expanded global travel freedom.
The UK remains a prime destination for South Africans seeking residency elsewhere. From 2018 to 2021, prime central London housing prices are expected to appreciate by 15.2%, according to the latest Global Real Estate Outlook (GREO) report released in 2018.
Cities such as Manchester and Liverpool offer promising rental yields for investors in the buy-to-let market. A government strategy known as the Northern Powerhouse initiative has played a part in driving positive market sentiment in the region. Infrastructure developments – such as upgrading Manchester’s Metrolink system, and the future introduction of a new high-speed rail network – will reduce travel time and increase connectivity, which is great for the city’s economy. In Manchester, gross rental yields of up to 5.6% were recorded at the end of 2017, while Liverpool has seen average rental yields of 6.2%.
Other destinations that offer residence by investment programmes are also looking more appealing on the back of the strengthening rand. Portugal, in particular, is appealing to South Africans, both for the affordability of quality properties, and because of the support offered to residency seekers through the programme.
South Africans will have no problems getting their money offshore, as citizens have a foreign investment allowance of R10 million annually.
A tax clearance certificate from the South African Revenue Services (SARS) is required before proceeding. In addition, South Africans have a R1 million discretionary allowance that they can use for foreign investment without having to obtain tax clearance – allowing them to continue to send funds to their preferred investment destination.
Investors who opt for a residency programme must be clear that different programmes tie the residency to the investment in different ways. For some, like Portugal, after the property has been held for five years, it is possible to obtain permanent residency. In some other countries, like Mauritius, the residency ceases as soon as the property is sold. Each programme is different and has its own benefits and drawbacks.