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How do I invest in property outside SA?

Buying property offshore might be quite rewarding, but there are some risks to be aware of.

I’m looking to invest in property outside South Africa. Is it wise to buy property myself and use a rental management company or should I rather invest in a platform that pays dividends? How do I save in an interest-bearing account in a foreign currency?

Sonia du Plessis - Brenthurst Wealth

Having fixed property as part of your investment portfolio is a big decision, especially if it’s not your primary residence. Firstly, you should be able to comfortably afford the property, whether you buy locally or abroad. The golden rule about investments is diversification, and a property (offshore or locally) should only make up a percentage of your portfolio.

Buying property offshore might be quite rewarding, but would come with its own set of risks. Firstly, you will be far from your ‘investment’ and you might not be too familiar with the offshore property market. If however you have plans to move there in the future, it might make sense to buy the property.

If the property is outside the borders of SA, it would be sensible to have a rental management company involved in managing it for you. This will give you peace of mind, and you won’t have to struggle with the day-to-day aspects involved in managing the property – for example, getting tenants or fixing any issues at the house.

You should also be aware of the legal and tax implications of purchasing an offshore property. You will have to look at getting an offshore will and testament, and will need to become familiar with situs tax (tax related to where the asset is located). With assets registered in some countries, you may have to pay estate duties, even if you are not a resident of that country. This is the case in the UK and the US. South Africa has double tax agreements with some countries that make allowance for estate duties so that you don’t have to pay tax twice.

These days it is very important to have liquidity in one’s investment portfolio, and buying property brings in a fixed – and therefore less liquid – element to your funds.

Investing in an investment vehicle where the growth will be from interest and dividends should be an option to consider. The main advantage would be liquidity. As a South African, one cannot just take money abroad – you have to take it out through your R1 milllion discretionary allowance, or you would have to apply for tax clearance, which can be done for an amount of up to R10 million. If you are inexperienced with offshore investments, I would encourage you to work through a financial advisor who is familiar with them.

Direct offshore investment accounts usually have minimum investment amounts; you would look at an amount in region of $25 000 (around R375 500 at the current exchange rate), with additions of $10 000 (around R150 000). Once you have opened the offshore investment account you can then add monies as you wish. Direct offshore accounts don’t cater for debit order amounts because you have to get a tax clearance certificate before you can take the money out, or you should have availability to take the funds offshore on your discretionary allowance.

As you can see, offshore investments can be complex matter. If you are not comfortable making all the decisions yourself, rope in the assistance of a financial advisor.

Do you have any questions you would like answered by registered financial planners?

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