Reasons for going this route include wealth diversification, creating a base for children to study abroad, generating foreign currency via rental income, establishing a holiday home, or seeking foreign residency status.
However, acquiring an offshore home for holiday purposes is a priority for only a small number of South African buyers, notes Chris Immelman, Head of Pam Golding International. While these holiday homes are typically being bought in Mauritius or Seychelles, Immelman notes that "most people buy for more practical reasons, such as externalising funds or generating foreign currency"
Apart from the Indian Ocean islands, popular destinations for buyers include Portugal, Cyprus and Malta (all Europe) and Grenada in the Caribbean. The United States also attracts interest. Portugal, says Immelman, is by far the most attractive destination right now. South Africans like the fact that Portugal forms part of mainland Europe, he says, noting that proximity to major European cities is also appealing.
Immelman points out that Lisbon and Porto, Portugal's two leading cities, are both transforming themselves and "attracting young talent from all over the world as new developments and upgrades take place. The country still offers amazing value and quality of life."
Portugal's popularity is due, in part, to its Golden Visa programme, which provides an opportunity to qualify for residency for a minimum real estate investment of between €350 000 and €500 000 (about R5.5 million to R7.9 million). The country has relatively low tax rates of about 20% and no wealth or inheritance tax, or tax on overseas pensions.
Similar to Portugal, part of the appeal of the Mediterranean island of Cyprus is that a property investment can lead to residency rights and ultimately European Union citizenship, albeit at a heftier price tag of €2 million upwards (roughly R31.5 million and above).
There's the opportunity to disinvest after three years by selling your property, but with the requirement that you reinvest €500 000 (R7.9 million). According to Immelman, few of Pam Golding's South African clients who invest in a home in these countries are pursuing emigration in the short term, but they do see it as a good investment opportunity to diversify their asset portfolio.
Guiding you through the process
For RMB Private Bank clients interested in taking the offshore property plunge, there are a range of services which they can leverage to make their investment journey a smooth one, notes Chantal Robertson, Head: Global Wealth Solutions.
"When considering the purchase of property offshore, it is key that you have a bank account in the related currency. For this purpose, you can choose to have a Global Account with RMB Private Bank, or alternatively open an account with our Channel Islands branch. You can fund these using your Single Discretionary Allowance of R1 million* or your annual Foreign Investment Allowance of R10 million*, which is subject to tax clearance, as per the Reserve Bank requirement. It may be feasible to have both, as the Global Account is a simple mechanism for short-term saving, whilst the Channel Islands offering is a transactional account in a foreign jurisdiction that also offers an offshore savings solution.
Depending on your timelines, it may be worthwhile to have a discussion with a Wealth Manager regarding the various investment options available offshore," Robertson explains.
For those wishing to put their offshore property into a trust, FirstRand's Guernsey-based international trust company can facilitate this.
"We bring the best of the FirstRand Group's offerings into play to provide end-to-end cross-border solutions," explains Robertson.
Of course, there are potential pitfalls to buying a home abroad. First and foremost, Immelman advises against going it alone, saying buyers should rather seek advice from a South Africa-based expert. "Your biggest challenge is to find someone on the ground who is trustworthy and has local knowledge of the property sector, otherwise you are going to end up either overpaying or buying in the wrong area," cautions Immelman.
"An area like the Algarve in Portugal looks like a great investment in mid-summer when it is full of visitors. But for much of the year it is dead. And if you want to attract a long-term local tenant for your property, it's pointless buying in an area far away from schools or with poor transport links. As an outsider, you probably wouldn't know these things." Potential buyers should first look at the full picture and be clear about their immediate property goals: Do they want to rent out the property?
If so, what is the expected return and how easy is it likely to be to find a tenant? Who is going to manage the property in the owner's absence? Who will collect the rent and pay the property taxes? Another consideration is whether there is a double taxation agreement between the country and South Africa.
In closing, Robertson reiterates the importance of getting the right advice on how to move funds offshore, and how to manage them once they get there.
*SA resident individuals who are registered taxpayers, and over the age of 18 can make use of their Single Discretionary Allowance or Foreign Investment Allowance.