Liberalisation of exchange controls

The recent long-awaited liberalisation of South African exchange controls has, said Bill Rawson, Chairman of Rawson Properties, led to a small flood of enquiries from the company's client base as to whether now might be a good time to diversify their property portfolios and buy one or two overseas properties.

In some cases, added Rawson, the clients are concerned about the future of the US dollar and certain other Western economies and are looking for a safe haven in which to ride out a possible crash.

"With R4 million per person per annum now allowed to be taken overseas," said Rawson, "South African husband and wife teams with a penchant for property will no doubt be tempted to capitalise on the current strength of the rand and start looking for overseas buying opportunities. Some are moving fast because they suspect that the current exchange control regulations may be altered within 12 to 18 months."

Rawson himself has on at least two occasions over the past year advised against South Africans buying offshore properties. How, therefore, does he now feel about it?

"I have to admit that I am still wary of going that route," he said, "and my reasons are:

often Capital Gains and other taxes in foreign countries are far higher than in South Africa and can, in fact, be crippling.

similarly agents, legal and artisans/maintenance fees overseas can also be almost ludicrously high.

the client operating from South Africa is not in a good position to check on the performance of those working for him overseas and this has led to serious difficulties for certain investors.

in the event of the buyer/owner dying an overseas estate can take two or three times longer to process than one in South Africa - and even here it can take up to 24 months; and

there is always a good chance that the investment will be hard hit by exchange rates which are unfavourable to the local investor bringing money back to South Africa. There does seem to be a fairly good chance that the strength of the rand could increase, making it difficult to repatriate an overseas investment.

the inability to borrow finance against overseas property will reduce the potential of high returns through gearing.

"The big factors in favour of buying an offshore property right now," said Rawson, "are that with Google Maps, Google Earth and a wide compendium of data readily available on the Internet it is possible to research the property thoroughly and, in particular, to establish what the market price of similar properties in the area are.

"It is also possible," he said, "on one's own to call up and review the property legislation and tax structures of the country being considered for investment.

"Even if this is done, however, the chances are still fairly high that you may overlook a particular clause or condition which could eat into your returns or profit or cause difficulties in some other way which you did not anticipate.

"Right now," said Rawson, "we are seeing how effective this type of investigation can be when applied to ourselves. We are currently dealing with several overseas buyers, two of whom are a South African couple based in Singapore who want to buy in KZN. They, too, have done their research, but it has to recognised that if they had not been dealing with a completely reputable estate agency they could have hit quite serious problems."

Rawson said that it had been argued that with overseas properties priced so low now has to be the time to get into property there. Much the same could, however, be said about South African residential property.

"Furthermore, the UK, European and USA markets probably still have 12 to 18 months to go before they show real signs of recovery, whereas in South Africa, I believe, the recovery will take place sooner and more forcibly."

Those seeking to buy property overseas, added Rawson, will have to be 100% tax compliant.

"It seems likely that before being given permission to take money out of South Africa they will probably find their financial situation subjected to a close scrutiny by the South African Revenue Services. For some of them this may have been an experience that they have never been through before. It could certainly be beneficial in uncovering undeclared returns and profits which local businesses are still on occasions adept at hiding."

If the dollar does crash in the way that some pessimists now fear, said Rawson, property could for a time become the new international currency, one of the few assets in which people will retain confidence. However, he said, this will be as true of South African property as any other.

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