Absa Home Loans has launched a new product, Absa International Mortgages, that is aimed at smoothing your path to investing in property outside the country.
Financing offshore property has always been complicated in South Africa, but Absa's new product will finance property for South Africans who want to buy international property and will also finance South African property for foreign buyers.
Gavin Opperman, the managing executive for Absa Home Loans, says a growing number of foreigners are investing in homes locally as they are attracted to the South African lifestyle and climate. Other attractions include a very competitive property market.
"We spotted a gap in the property market and decided to launch a dedicated service to customers in all aspects of buying a residential or investment property in South Africa or abroad, which is possible through our working relationship with Barclays in the United Kingdom," Opperman says.
South Africans are looking to hedge their investments, he says.
"We are not talking about first-time home-owners, obviously. This product is aimed at buyers looking for rand-hedged investments or holiday homes," Opperman says.
Forex regulations
Exchange control regulations in South Africa allow you to take a once-off allocation of R2 million offshore without paying tax on that money, so a couple could collectively invest R4 million offshore with no tax repercussions.
Opperman suggests you could, for example, use the R4 million as a deposit for an international investment property and use the rental income from the property to pay off the bond.
"It all depends on the location you want to buy property in. In places such as Mauritius, Portugal, Spain, Italy and Dubai, you can definitely buy a property for R4 million. However, if you are looking at property in central London, R4 million is only likely to be a deposit on a much higher purchase amount," he says.
Opperman says South Africans tend to speculate on property investments. However, if you are buying offshore and speculating for investment purposes, you need to be more cautious and should look at the long-term investment implications.
The Barclays link
Absa International Mortgages will intercede on behalf of South African customers who wish to make use of Barclays International Mortgage Services to acquire property off-shore for residential, holiday or investment purposes.
If you decide you are interested in buying property offshore but don't know where to start, Absa will help you by doing a property search in the area of your choice and finding out the transfer duty costs in the country where you want to buy.
The bank will also research reputable estate agents and conveyancers who you can deal with in that country.
"We will not advise you on which property to purchase but can offer introductions to reputable estate agencies and conveyancers so that you have some peace of mind when you are concluding your transaction," Opperman says.
An international loan is unlike a local mortgage loan in that you will not get a 100-percent loan because the bank will not take that high a risk. You need at least a 20-percent deposit to make it a viable transaction for yourself and if you do not have that kind of cash at hand, you could raise a bond on your South African property and use that as a deposit for your international property purchase.
However, be wary of doing this if you still owe a great deal of money on your South African bond as you don't want to end up in a situation where you lose both your international property investment and your local property or home.
Foreign buyers
Foreigners who want to buy property in South Africa are allowed to borrow up to 50 percent of the purchase price. Opperman says Absa sees the foreign interest in the local property market as a good opportunity to channel more money into South Africa and the bank will carry out credit checks on potential buyers through its international Barclays branches.
"We have had huge interest from foreigners and from ex-South Africans living or working abroad, who now want to buy property in South Africa," Opperman says.
The total value of bonds registered in the South African Deeds Office last year was R160 billion.
Patrick Wadula, Absa's head of media relations, says despite the current slump in the local market due to rising inflation and increased interest rates, the value of the bonds registered for the first two months of 2008 was R27 billion.