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Would it be crazy to sell my house and take the proceeds overseas?

I’m thinking of selling my house and depositing the proceeds overseas as an insurance policy against further political upheaval.

I am retired, I have most of my pension money in unit trusts, I do not have a bond, and I have a small amount of (legal) cash overseas. The political situation frightens me, even though South Africa has become relatively stable.

I am thinking of selling my house and depositing the proceeds overseas as an insurance policy against further political upheaval. Is this a crazy idea?

I have lost faith in unit trusts since the Steinhoff debacle and the recent downgrade in the value of property mutual funds. I have no financial advisor as my relationship with advisors has been less than satisfactory. Is it better to switch to exchange-traded funds (ETFs)?

Big financial houses, such as Momentum and Sanlam, charge what I think are very high fees. If I decide to stay in unit trusts, is it better then to invest directly with institutions such as Coronation and Old Mutual?

Would it be crazy to sell my house and take the proceeds overseas?

Lisa Hudson-Peacock - Southwood Financial Planning

  

It certainly would be unconventional. I would not ordinarily advise a client to sell the home that he lives in unless he were emigrating or needed to raise capital and live off the proceeds. There are many people who rent rather than buy the home they live in — in itself, this is not unusual — but a decision to sell your home within a financial-planning framework would require unusual forethought.

Normally, a home is seen as a lifestyle asset rather than as an investment. Financial markets are inherently unpredictable environments — just the last month is evidence enough of currency and asset-class volatility — so consider the possibility of losing some of the capital you’ve invested and no longer being able to afford a house of the same value as you had before. In any case, your new rental payments would unavoidably erode the overall return from the invested proceeds. Realistically, it is unlikely to make financial sense.

I would rather look at your portfolio of discretionary and non-discretionary savings to manage your geopolitical diversification. Unless you want to downscale or realise capital, I would advise that you consider your home as an asset of last resort.

Do I move from unit trusts to ETFs?

A move to ETFs would not eliminate the risk of share-price volatility, but it could reduce the overall cost of taking market exposure. ETFs are usually portfolios of shares or other assets that track certain indices, rather than being portfolios that are actively managed in anticipation of outperforming such indices. There are no portfolio managers and research teams managing these products, so costs are lower and the fees they charge their investors are also lower.

Had you owned an ETF invested in the South African stock market last year, you would still have had exposures to Steinhoff and the property market, since both have significant weightings in the index. In the case of Steinhoff, few active asset managers had overweight positions in this company, so, bizarrely, you might have been worse off in an ETF than in a unit trust.

We regularly advise our clients to gain international exposure through passive funds (ETFs included), but we do not feel entirely comfortable doing so in the domestic market. At present, a few large international companies dominate the South African stock exchange. Naspers, in particular, is over 25% of the index, and we think this unusual level of stock-specific concentration is unhealthy. This problem can be mitigated — and portfolio diversification can be promoted — through the use of an actively-managed domestic equity fund. Further, the international exposure of a local passive fund can be better managed through a dedicated global fund.

Should I go directly to Coronation or Old Mutual?

If I have interpreted your question correctly, you are investing into unit trusts managed by, for example, Coronation and Old Mutual on “platforms” administered by, for example, Momentum or Sanlam. These platforms do indeed carry an administrative charge over and above the asset management fees charged by the underlying investment managers.

There are benefits to managing your investments through such platforms that may be worth paying for. You will be able to switch between different unit trusts across different management companies within your portfolio with administrative ease. Switching on some platforms will be free and on others at a negligible cost. The platform administrators are often able to negotiate lower management fees than would be charged to you as an individual investor. You also need to go through the Fica compliance and registration process just once, rather than with each unit trust provider you choose to use.

Given that the administrative fees for these “platforms” are usually based on a percentage of assets-under-management, the benefits are much more cost effective for smaller portfolios. My advice would be to work out the rand value of the fee and see whether you feel the benefits are worth it on your portfolio. There are several platforms to choose from and it would be worth your while to compare their respective costs and benefits.

A less-than-satisfactory relationship with financial advisors

Financial advisors and planners are for the most part highly professional people. It would be unwise, and unfair, to dismiss en masse their ability to add value to your financial affairs. I’m sure that the irony of your current uncertainty and call for advice has not entirely escaped you. Given what’s at stake, take the time to seek out an experienced, independent, certified financial planning professional in the same way as you would a lawyer or doctor.

  

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ok, say you get 5 million for your house….what will be the fees/cost for one to deposit the proceeds overseas and what will the fees/cost be to get the money back once the political situation is “normal” ?

“………..once the political situation is “normal”

LOL It IS normal Chev.

Coronation and Old Mutual are not exactly small compared to Momentum and Sanlam. Coronation has one of the biggest unit trust funds in the country, and total assets under management that’s about the size of Momentum and Sanlam combined. Old Mutual has about three times as much assets under management.
You could invest directly with either of them, but if you make any wrong decisions on which fund to invest in, it’s your own responsibility. Old Mutual offers some active and passively managed unit trusts.

If you invest in ETFs, it’s the same basic underlying basket of assets, just a different belief on how to manage it. Low costs, low Like choosing a different church. Same God, but how do you know which fund will take you to heaven? Old Mutual’s passive unit trusts will rival ETFs for total costs.

With the type of questions you’re asking, I really think you need an independent financial advisor. He might ask you some curveball questions like where you’re going to live when you sell your house.

Thank you for the replies. I am the person who posed the question. My life is coloured by our flight from the farm in Rhodesia in 1976 with three small children. We had our furniture, no car as the Government would not allow us to take a car less than 2 years old plus one thousand Rhodesian dollars. We were never able to recover our investments. Still I was 30 then but now I am 71 years old and cannot start again. The fees for transfer of money are reasonable,but exchange rates can be a problem.The house is not a luxury home. The unit trusts are based on advice by financial advisors. Have had problems there, mostly with lack of contact. I will examine the advice. Thank you.

@ Henriques

Personally, I don’t think its a crazy idea so long as you have somewhere else to live in the meantime. The rand is pretty strong right now considering the real state of the country/economy and likely a good time to convert.

I would look to invest in something like a US/ UK REIT which is reasonably safe and can give 6-7% yield and give you your ZAR hedge. No idea what the legalities are though.

Plan that you will live till 90,
Work on a 5-10 year investment horizon with unit trusts etc.
Reassess your home value every 2 years and if in 4 years u recieve A good offer,then consider rental ,and live off the
Invested capital and dividends/ interest in a comfortable retirement apartment.CPOA have some lovely units,which you can rent.
Coronation Top 20,AllanGray Balanced & Nedbank Rainmaker are all 3 solid funds,with good track records
And well managed.
Consider an Index fund,Jse All share Top40 fund is solid.
Any money invested offshore must be easily accessible ,should you need it.
Understand where your money is invested offshore and the risk involved
Any advice given by a financial advisor can be Checked,with friends/ family members who have a good grasp
Of money matters
Good luck

Couple of thoughts:
– Renting is not stable and you might have to move a lot. At 70+ years old, renting is not good.
– The collapse of Steinhoff is normal in any capitalist economy. Remember the collapse of Enron in the US, Blackrock in the UK, etc? I would not be worried about it.
– You want multiple levels of protection in place, emergency savings, paid off house, diversified portfolio, good insurance against “big ticket” bad things such as good medical insurance.
– At 65+ years old, long term care insurance is very important to have. You are very likely to need care and it is very expensive.
– 6 months of living expenses in a savings account (emergency fund).
– A paid off house in a safe neighborhood to provide stability. Not extravagant, just enough to be comfortable and close to hospitals.
– Retirement money invested as diversely as possible with a mix of international and local shares and bonds.
– Not too much money kept overseas as the exchange rate will affect you too much. Max 70% overseas if living in South Africa in my opinion.
– Stop watching the evening news. Most of it is fear mongering/propaganda and has zero impact on your daily life. There are 55 million people in this country, of course something bad is going to happens somewhere in the country every day. That does not mean it will happen to you. Our brains are not wired to cope with such large numbers and bad news on a daily basis.

Ask yourself, how many people who replied here had gone through what you have gone through in Rhodesia? Do you recognize the signs?
Why do we still call it Expropriation without Compensation? Call a spade a spade, i.e. Land Grabs

Depends on the value of the house. If its a R5m house sell it and down scale to a R1m home and invest the remainder offshore to limit risk. If it’s a R1m home I would not bother.

There seems to be a lot of anxiety in the South African financial markets created by Mr. Zuma and his paratroopers.

Most South Africans lost money due to Mr. Zuma.
You would only not have lost money if you did not have any money?

Things will be better now with his departure, but no one knows for how long.

You can also lose money overseas.

Hi Henriques.

The idea also went through my mind (since ‘Nenegate’), so you’re not crazy. But one has to look at logistics/practicalities.

A lot of financial advice is given, rightly so, but also read up or chat to SCENARIO PLANNERS (like Clem Sunter, RW Johnson, Frans Cronje, etc) views. But since you’ve past 70-age, you’ve seen/witnessed so much in one’s life….with age comes wisdom, and you become a ‘scenario planner’ in your own right…i.e. you’ve been there / got the Tshirt…

And I share your views, as we realise WE ALL will grow old(er), and the fear of becoming a victim of criminal attack, is natural to increase. (How many times I noticed the elderly visiting bank ATM’s on their own, and thinking how vulnerable one is at say 70-80 age…young thieves don’t even have to fight the elderly…they just push you over, or hold you to the ground) 🙁

I assume you’ll remain in SA(?) instead of relocating abroad. (The latter will be costly, and the ZAR is worth nothing, and keep in mind medical costs in a foreign country?) To uproot at age 70+ not worth the shock/adjustment to one’s system so late in one’s life…unless the kids are abroad.) Yes, in SA one may die from crime, but in Europe or Oz/NZ you may die from boredom! 🙂

If staying in SA, and you decide to sell your house (to supplement your income), bear in mind you’ll have to rent somewhere. If there’s no consideration for spouse/kids to inherit the property, then you can unlock value in the property & turn it into income.

One consideration you may think of selling, is the (small) political possibility that Govt…when CR is gone after serving his term, and another tribal madcap replaces CR…nothing stops Govt to promulgate a law stating any non-indeginous residential property owner (per the Deeds Register) much identify & co-register an African person with say 51% (or less for starters..) as co-owner. Like BBEEE for property owners. Or ‘land issue’ to the farmers. So that the indeginous can also inherit their part after you sell, or pass on. Sound crazy you say? In Zim, certain businesses are subject to 51% african ownership. Not crazy, but real. Why then not SA res property? (This is the small risk of owing property in Africa, even if sensible CR is now steering our listing ship). But on other hand, our real estate is cheap compared to Western countries…so we live in “relative” wealth over here 😉

Alternatively, if personal safety (at old age) is your main concern, consider perhaps to keep the status quo, and rent a cottage/outbuilding to a more physically alert younger person/couple, which adds to protection on one’s yard/plot/smallholding,etc. If the young & alert tenant is a (responsible) gun owner, even the better. Bonus…plus earn rental income.

Frail care facility as a later option depends on your state of health (physical or mental 😉 but such a community will always have more personal protection than living alone on free-standing house/plot.

SA citizens may now be more relaxed since CR is at the helm, but DO NOT forget, that we all (I include my black compatriots, who equally suffers from crime in townships..same boat) live in an African country, where the majority of population which is poor / many with no job…and the unemployed are getting more (result of no birth control / zero family planning, and child-grants motivate to get more kids). So SA has a developing poverty explosion…the not-haves increasing, the the haves are ageing. Untenable. A very “uneasy” situation when you drive ‘safely’ in your own car, while hundreds walk the road alongside. When will SA experience it’s next Coligny (NW) event?, when parts of town was raised to the ground (with SAPS and priv security not able to protect property, but just help people to safety). A “mini-Zim”.

The land issue will never die in SA, irrespective how unworkable it will be. What happened to former colonial countries in Africa, will also happen in SA…over time / a slow deflate. Already we are not the largest African economy, but the most ‘industrialized’. Pah!! Two out of 3 rating agencies have SA as non-investment grade. SA is not a ‘miracle country’ (read RW Johnson) that will keep on avoiding calamities we see on TV-screens that happens “only in other countries”. Water supply is our next big problem.

Stay in SA, but realise the challenges. Get rain-water harvesting system with tank / stay close to your (known) medical facilities. Rent out part of property to the younger folk (for indirect protection) / befriend the younger tenant, pass small inheritance to them, if they treat you like their own father 😉

Take your money out of SA and rent. Rent is cheap in SA and with a good lease agreement (3 years plus option to renew) you are protected. I would strongly advise you NOT to buy property in SA. Its not going to increase in value and when you need to sell, you wont be able to.
Invest offshore and link that account to a bank account in Mauritius which offers a debit card which will give you access to your money in SA at any ATM.
Expropriation without Compensation is the greatest threat to your investments. You’ve seen it once before, you don’t want to see it again.

Hi FV 🙂

As a matter of interest, which bank in MAU are you aware of (examples?) where one can link such investments. Last year I emailed a similar request to MCB (Maur Comm Bank) and still await any response.

I doubt if it’s possible to open an account in Maur, without being physically there, and what about FICA/local address issue? An online search with MCB and ABC bank regarding “non-res accounts” lead to nothing.

STD Bank / Nedbank / Investec (afaik) has branches in MAU, but access is only aimed at your “HNWI” Private-wealth type clients.

Asking this question on the back of parliament’s approval of Malema’s demand that there be expropriation without compensation and given that Malema has clarified this to mean that all property will be owned by the State and that homeowners will occupy their homes at the pleasure of State by way of lease then selling your house and sending the proceeds overseas seems like an excellent idea. Parliament appears to have started us down the road of a possible civil war.

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