Buying abroad

Don’t keep all your eggs in one basket. Heard that one before, right? This well known investment maxim makes perfect sense to the average South African small investor. Even the simplest portfolio invariably consists of various asset classes.

In addition, many small investors also go a step further, making offshore investments to reduce their risk even further. If we readily accept the wisdom of making some of our investments overseas, why then is investing in overseas property still such a novelty?

“A lot of South Africans are still under the impression that our property is very cheap when compared to most other markets,” says Andre de Villiers of Chas Everitt Overseas Properties. “It just isn’t so anymore.”

While many potential overseas property investors don’t realise they are able to afford such an investment, to most the option just hasn’t occurred to them. But the times they are a-changin’ as the recent launch of Chas Everitt Overseas Properties, the first company of its kind in South Africa, suggests.

“Our research shows that there are now many South African investors that are very keen to pursue real estate opportunities in other countries,” says Berry Everitt, Managing Director of the Chas Everitt International Properties.

This increasing interest is also fuelled by the slowing of the local market and the fact that many local home owners have built up substantial equity in their own homes during the recent property boom.

“Another reason for the recent interest in overseas property is that our own boom gave many South Africans an appetite for property investment, which they are now looking to satisfy beyond our borders — much as those who invest in equities have become accustomed to doing,” says Everitt.

Why invest in overseas property?

Buying an overseas property is an excellent way to protect yourself against economic and political uncertainty as well as the devaluing Rand. It also makes good investment sense to tap into booming markets. “In markets like Brazil and India the increase in local buying power and an emerging middle class is propping up their property markets,” says De Villiers. “As more people get access to mortgages this trend with accelerate.”

In certain countries, like Brazil and Mauritius, buying a property automatically gives your residency — an overriding factor for about 10 percent of investors.

Where should you buy?

This is a tricky one. Everyone thinking about investing in overseas property will have different reasons for doing so. Often there are vastly different opinions about which markets are hot and which are not. It is therefore important to thoroughly size up the source of any information in this regard. Do they have any interest in the markets they are ‘talking up’?

Property in emerging countries usually offers better value than those in developed ones. For example, R80 000 will get you a small, rickety house in rural Romania. Property in emerging markets may be cheap, but can be risky. As with any investment taking on more risk can mean a greater reward. Assess your appetite for risk and invest accordingly.

Eastern Europe shows great promise as do countries as diverse as Morocco, Brazil, Mauritius and the Dominican Republic.

The UK’s Channel 4 has a property programme that recently compiled a list of the 20 best places to buy a property abroad for investment purposes (considering only projected return on investment). They were Romania, Poland, Portugal, the Baltic States (Latvia, Lithuania, and Estonia), Sweden, Belgium, Slovakia, Sweden, Finland, Hungary, Luxembourg, Germany, Czech Republic, Ireland, Austria, Netherlands, France, Italy, Spain and Cyprus.

According to Everitt, his pick would be one of the ‘new’ markets that offer excellent opportunities such as Brazil, Argentina, selected Caribbean countries and countries in Eastern Europe. Everitt also believes that certain African countries deserve attention including Egypt, Morocco and Mauritius.

“In the Dominican Republic you don’t pay capital gains tax, you get residence and often the developers can provide financing,” says De Villiers. “Another major advantage of this market is that we can give you rental guarantees. Dubai has many similar advantages as does Egypt, Cyprus, Bulgaria and Brazil, where 60 percent of Chas Everitt’s focus lies.”

Who can afford to invest in an overseas property?

According to De Villiers, anyone with enough money to afford a second home in South Africa is wealthy enough to buy one abroad.

Studio apartments in Bulgaria, around the Red Sea or in Brazil start at less than R800 000, a bargain compared to what a similar property would cost in, say, Cape Town’s CBD.

Chas Everitt Overseas Properties even has a scheme whereby investors with as little as US$50 000 can buy shares in a company that invests in property on their behalf.

When should you buy?

Instead of trying to time a market that you might not know much about, rather ask yourself, ‘Can I easily afford to buy? Does my cash flow allow it? How does buying at this or another point in time fit in with my financial goals for the future?’

These questions rather than the market cycle should guide you in making a decision on when to buy.

‘If only I bought that house ten years ago! Man, I would have made a fortune!’ Sound familiar? If you want to and can afford to, just do it!

Buying to let

If you’re not a speculator and you’re not planning on actually living in the house you buy, you’ll probably want to rent out your house. Buying to let in a foreign country can be a nightmare as you won’t be there to keep an eye on your investment.

It is therefore worthwhile doing this type of investment through a company like Chas Everitt Overseas Properties, as they focus on property in a managed environment and can often guarantee a rental income.

If you go it alone it would be wise to consider the following points before buying to let:

  • Contact local agents that specialise in letting. You’ll need their expertise in determining expected rentals in the areas you’re interested in as well as what property types are popular with renters.
  • Familiarise yourself with the legalities regarding renting and letting as these differ from country to country.
  • You might be living in a different hemisphere, so in addition to choosing a property that will be easy to rent also consider ease and cost of maintenance.
  • If you’re not going to live in the property forget about what you like. Your tastes are of no significance, only those of your potential renters. Try and find out what those tastes are.
  • Advertising your overseas property in South Africa could result in tax demands from South African and foreign revenue services.

More tips for buying property in a foreign country:

Go on an inspection trip or dedicated overseas property exhibition. Inspection trips are usually package tours that aim to give you an overview of what the properties look like in the country where you want to invest. Although an inspection trip can be valuable, be careful of being given the hard sell or feeling pressured into buying property that you are not absolutely sure about.
Give yourself a ‘cooling off’ period and never agree to put down a deposit there and then.

Companies like Chas Everitt Overseas Properties sometimes have deals with specialist tour operators and can facilitate inspection trips.

Arranging finance. This is potentially the greatest headache when investing in overseas property.
If you can, pay cash only. Many of the emerging countries where great investment opportunities exist have financing mechanisms that aren’t as refined as in South Africa, while some don’t allow foreigners to take out mortgages. Even when you can get financing overseas, banks usually require a fairly large deposit from foreign property investors.

In order to avoid needing finance, consider approaching friends or family to join you in making an overseas property investment.

If you need financing always arrange it ‘in principle’ before signing anything or handing over a deposit. Ensure that any contract you sign has an ‘opt-out’ guaranteeing that your deposit will be refunded if the loan is refused.

Companies like Chas Everitt Overseas Properties deal with developers who provide financing for you. You can avoid the banks, and the accompanying difficulties, completely. Another bonus is that the developers they deal with provide you with financing based on the value of the property you buy and not on your income.

Seek specialist advice. Definitely seek specialist advice from estate agents, solicitors, architects and surveyors in the country where you plan to invest before making a purchase. Pepper them with questions, also regarding costs that the local authorities may charge, but that you might not be used to paying when buying property in South Africa.
A local solicitor should be able to check that you do not inherit a debt on the property you plan on buying. This could happen if a developer had to take out a loan against the property so as to start or continue building.

Only negotiate with professional advisors that are officially licensed and, if possible, have a good command of English and the local language.

Make sure the specialist you approach for advice is independent and never rely on a lawyer that the estate agent or developer recommended.

There are always costs that you didn’t plan on. There are many costs that you can plan for including lawyers, taxes, insurance etc. Keep in mind that these costs are usually much higher than in South Africa. It’s a good idea to budget an extra 10 percent for costs you will incur, but can’t think of before starting the process of buying a property abroad.

Open a bank account in the country where you choose to invest. Some countries require a ‘Certificate of Importation’ for any money you bring in from South Africa. The bank where you open your account will advise you in this regard.

In some countries failure to pay rates and taxes can lead to court action and seizure of your property. It is therefore a good idea to arrange for a debit order to pay rates and taxes.

Make your offer in writing. Ensure that your offer is subject to the signing of a contract. Indicate what you understand to be included (i.e. furniture, etc.). Your written offer should stipulate the amount of the deposit and when you will pay it. Also include in your offer that it is dependent on there being no major defects that you have not indicated you will accept.

Never sign a contract in a language you do not understand. Don’t except verbal translations — insist that the entire contract is translated into English. The contract should include a clause stipulating that the English contract takes precedent in the event of a clash with the contract in the local language. Remember this point. These conflicts happen more often than not.

Verify your title deed. When buying property in South Africa you get a document confirming that you are the rightful owner. In some countries property rights aren’t so clear cut. Make sure there cannot be any claims on the property by someone who might be many generations removed from the original owner.
To assess the risk contact a notary. They verify legal documents for a living and can assist you in researching the property’s title history to find out if there is anything to be weary of or whether there has been or still is a claim on the property.

What about a ‘bribe’? While any kind of bribery would be considered highly irregular in South Africa, this is not the case everywhere. Again, it might be useful to consult a local estate agent.
In certain Middle Eastern and Asian countries gift giving is not considered bribery and a completely accepted and required part of doing business.

Be wary of buying off-plan. This entails buying a property before it is built. The dangers inherent in buying off-plan are obvious, especially when you’re not even on the same continent as the developer. You won’t see what you’re buying and you might have problems if the developer can’t stick to the schedule.
The only way buying off plan is a good idea is through a South African company that specialises in overseas property. At the moment only Chas Everitt Overseas Properties fits the bill.

The main advantage of buying off-plan is the massive discounts that usually come with these transactions.

Public transport. In most of the developed world, unlike South Africa, there are many people who prefer to use public transport rather than their own cars. Proximity to transport nodes is therefore an extremely important factor to consider in many countries.

A room with a view , but for how long? Check planning regulations to ensure your stunning view cannot be spoiled a couple of years down the line by an unsightly concrete monolith.

Choose a location that is desire by locals and tourists alike. Your property might be in spot that’s popular amongst tourists, and that’s great, but what do the locals think? When choosing where to buy you have to consider the day that you will want to sell. You want the property to appeal to the biggest possible market.

Learn the language. The advantages of speaking the language of the country you’re buying a house in are obvious. Don’t be daunted, you don’t need to be fluent and you’ll have fun learning.

Check the inheritance laws. In addition to your will in South Africa you might also need a separate will in the country where you buy. In some countries your children automatically inherit your house and your estate won’t pass to your spouse unless explicitly stated in your will.

Look for the undiscovered hotspot. Buying in the most popular countries and in the most trendy areas implies that property prices are already high and might not have as much scope for appreciation as buying in a less-fashionable area or country might have.

If these less-fashionable areas have all the virtues of the well established ones, they will be discovered, leaving you in the pound seats.

A good place to start looking is neighbouring the more expensive and popular hotspots.

What about winter? Have you seen the property in the off-season? What might look like an excellent property in July might be not be that great in January.

“You have a responsibility to yourself and your family to protect your assets,” says De Villiers. “It’s not about a lack of confidence in our market. It’s about balance. Investing in a property abroad is not difficult, it is not risky and it is not expensive.”

Article by: Kabous le Roux

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