Local is still lekker" when it comes to comparing SA and overseas property purchase opportunities, says Rawson MD
| Since the onset of the global recession there have, says
Tony Clarke, MD of Rawson Properties, been numerous advertisements in the
SA media for bargain buys in UK, USA and European property.
Some advertisements, said Clarke, are claiming that the current prices are
40 to 50% lower than they were at peak and South Africans are advised
to make use of the new strength of the rand to benefit.
While there is some truth in these statements, said Clarke, the prospective buyer should be aware that the dangers facing any buyer dealing in a country where he does not actually live are always great. Further, the potential returns and/or capital appreciation are almost always just as good, if not better, here in SA than they are offshore.
Buyers looking to purchase overseas should, said Clarke, be aware that, while it is possible to borrow from banks in certain countries for this purpose, they will, as in SA, be scrutinised carefully as to what they can genuinely afford (and at what level their other debts are running) and thorough checks will also be made to ascertain the real value of the property in todays market.
Potential buyers should realise too that overseas countries also charge fees for the estate agencys services, mortgage registration, land registration and other services and these fees are likely to be very different from those that apply in SA. Some, said Clarke, will be totally unexpected.
Then, too, as in SA, the UK or US banks will not lend a foreign buyer more than 50% of the total purchase price or property value, whichever is the lesser.
Always arrange your mortgage finance "in principle" before agreeing to purchase a property or signing a contract and, most importantly, do not pay a deposit until such finance is in place, advised Clarke.
There is always a danger, he added, that the SA buyer will sign what appears to be a standard agreement only to find that he has not fully understood certain clauses. If he does not understand a contract, especially if it is in a foreign language, he should not sign it.
It is, he said, absolutely essential to ensure that the buyer really does understand what every line of the agreement means. At Rawsons we advise our clients to consult independent attorneys, surveyors, architects, other agents and municipal officials and always to get more than one opinion, especially regarding values.
When signing an agreement to purchase, said Clarke, it is important that this makes it clear that the deal is subject to the finance being granted. The agreement should also have an opt out clause for the buyer and a reappraisal cooling off period.
Furthermore, where possible, Clarke said buyers should arrange their mortgage in the currency that they earn, unless they receive rental income. In that case the monthly debit orders and rental income from the property should be paid in the local currency so as to avoid exchange duties on every transfer.
It is usually a good move to open a bank account in the country where you are buying and to get a Certificate of Importation. You can then arrange for all taxes, bills and bond repayments to be done through the foreign bank but check regularly that these sums are market-related and are paid on the due date.
Clarke warned that in many overseas countries the banks or the local authority have the right to seize a property on which money is owing and they will do so.
Always, he said, get a solicitor to check that you do not inherit debt on the property, before your purchase. This could occur if you purchase a legal entity in which the asset is a property or where a developer has borrowed money to build a development and this amount had been allocated against each plot as additional security to the developers bank.
Clarke warned, too, that in overseas purchases, there is for some inexplicable reason often a tendency to pay more than the buyer can truly afford.
Do be careful to set a realistic budget, he said.
As in SA, he added, a small percentage of tenants will be unreliable, the type who see a landlord as easily ripped off.
As here, therefore, it is absolutely necessary to have a local agent who understands credit and past record checks.
All in all, said Clarke, in property investment local is still lekker.
I have myself bought overseas, he said, but the plain truth is that although there is a certain wisdom in diversifying, the local opportunities are just as good, often better, and the ability to keep a close eye on your investment outweighs any advantages of dealing in property offshore.
Article by: www.rawsonproperties.com