Off-Shore

Here’s looking at Plan B

View of the island Grenada, St. George's, Caribbean

More and more South Africans are leaving the country in the hope of greener pastures. We assess their options.

More and more South Africans are leaving the country in the hope of greener pastures. We assess their options.

Thousands of people are applying to residence and citizenship-by-investment programmes annually, and demand for second citizenship is accelerating. The Global Wealth Migration Review 2019 released by AfrAsia Bank and New World Wealth estimates that about 108,000 high net worth individuals (HNWIs) migrated in 2018 compared with 95,000 in 2017.

“Australia was the top country worldwide for HNWI inflows in 2018, with Sydney being one of the most popular places to move to,” says Andrew Amoils, wealth analyst at New World Wealth. “Other popular countries included the US, the Caribbean, Portugal, Spain, Greece, Malta and Mauritius.

Valletta, the capital of Malta

Valletta, the capital of Malta

“Among the most popular cities among migrating HNWIs in 2018 were Dubai, Los Angeles, Melbourne, Miami, New York City, San Francisco and Sydney.”

New World Wealth’s global wealth migration report serves to gauge the health of an economy. “Countries that attract HNWIs, like Australia and the US, tend to be healthy and have low crime rates, good schools and good business opportunities,” says Amoils.

Investment migration is becoming “a fact of modern life, something accepted around the world as a significant benefit for individuals and countries alike”, says Henley & Partners chairman Dr Christian Kälin. He has been dubbed “the passport king” by Bloomberg for his pioneering work in investment migration and citizenship-by-investment.

“In an unsettled, ever changing world, acquiring a second citizenship is a wise decision and reliable investment for the future,” Dr Kälin says.

Bbc.com reports that more than half of the world’s nations now have citizenship-through-investment programmes. Dr Kälin puts the value of the global industry at $25bn per year. “Citizenship through investment and investment migration programmes are nothing but a reflection of a world where everything has become more fluid.”

Foreign Shores

Pam Golding International is experiencing heightened demand for international property, fuelled by investor desire to diversify investment portfolios with a rand hedge.

“The need to diversify, coupled with demand for offshore citizenship, has seen increased uptake by buyers investing in residential property in
Portugal via the Golden Visa programme as well as a surge in interest in the US EB-5 Programme for access to a Green Card and the Grenada citizenship-by-investment programme,” says Pam Golding Property Group CEO Andrew Golding. “Notwithstanding, property in Mauritius and the UK remain firm favourites with South African investors.”

In Portugal, buyers invest mainly for European Union residency, with the €350,000 Golden Visa developments in Lisbon, Porto and Cascais being the most popular. Golding says in Mauritius they’re motivated by a combination of residency and leisure or second home acquisitions, whereas in the UK it is about investment in hard currency, a hedge against political instability and diversification.

Porto, Portugal

Porto, Portugal

Portugal and the UK offer South Africans affordable investment opportunities with good returns, says Lisa Bathurst, international property specialist and founder of Hurst & Wills.

Relatively low cost of living and a non-habitual tax regime with tax incentives are Portugal’s draw cards. “It also has more affordable Golden Visa options available from €280,000 for property bought in low density, rehabilitation areas,” Bathurst says. “The vibrant walled city of Evora, two hours from Lisbon, falls into this category.”

In the €500,000 Golden Visa category, Bathurst recommends looking at properties in prime areas that offer genuine guaranteed returns. “Do thorough due diligence when purchasing any property overseas, especially one that claims a guaranteed rent,” she advises. “It is safer to use independent experts to make sure you get a property that suits your wealth strategy and citizenship goals. We have residential and resort style investments on offer in Lisbon, with guarantees of up to 4%, owner usage, and fully managed and furnished options, starting
from €265,000.”

Islands in the Sun

If your heart’s desire is to gear down to island style, Mauritius, Seychelles and Grenada tick the right boxes. Live – and work, if you must – with an idyllic retirement in mind. Mauritius has jumped seven places to rank 13th out of 190 countries in The World Bank’s 2020 Ease of Doing Business Report, reaffirming its leading position in Africa. You can buy prime property from $160,000 or secure permanent residency for you and your immediate family with an investment of $500,000 or more. The island offers a safe, secure living environment that attracts a rapidly growing expat and business community. Capital growth has averaged 7% per annum for the past four years. There is no inheritance tax or capital gains tax. Mauritius is less than a four-hour flight from Joburg.

A Mauritius beach

A Mauritius beach

Beyond it lies Seychelles, which you’ll reach in five hours. Boasting some of the best beaches in the world, this archipelago of 115 islands offers the same tax benefits as Mauritius. You can buy a waterfront apartment from $150,000 with the option of residency. All properties are freehold title, with a super yacht marina on their doorstep. Seychelles has a safe, cyclone-free sailing environment and ranks second out of 54 African countries for overall governance. Located in the Lesser Antilles in the Caribbean Sea, Grenada holds 32nd spot on the 2019 Henley Passport Index, which ranks the world’s passports according to the number of countries they can enter without a visa. With a Grenadian passport you can access 142 countries. (A Mauritian passport, in 30th spot, gets you into 146, whereas a Seychellois passport, ranked 26th, gets you into 151.) Here you are required to make a real-estate investment of $350,000 to qualify for the property backed citizenship-by-investment programme, and you will receive a passport within four months.

Golden Visa

Pam Golding International is about to launch its first apartment development in Porto, Portugal, which qualifies for the €350,000 Golden Visa investment.

“It should be very attractive to South Africans wishing to enter the programme but who do not want to spend as much as €500,000,” says Pam Golding International MD Chris Immelman. “Up to now the €350,000 options were only available in private equity funds, where you would purchase shares in a hotel development. Santa Catarina Place affords investors full ownership of an apartment in the heart of downtown Porto.”

It’s not surprising that Lisbon is on investors’ radars. The 2019 Emerging Trends in Europe report rates it as the top city in Europe for overall investment and development prospects, having leapfrogged 10 places to number one.

Meanwhile, in the UK the political uncertainty around Brexit that has weighed down the market may soon be resolved. And for many Londoners who have put their lives on hold for the past three years, the finale can’t come quick enough.

“Property transactions have fallen by about one fifth in the London market since the vote, with buyers and sellers reluctant to commit until the post-Brexit landscape becomes clearer,” says Mike Smuts, MD of London property specialists Smuts & Taylor. “And yet the average asking price climbed by 2.4% in October to £618,432 according to the latest Rightmove asking price index. This meek recovery is being driven by ultra-low mortgage rates, a robust employment market and a general lack of supply, with about 30% fewer properties coming to market than at the same time last year.”

Increased Activity

Smuts explains that increased activity from international buyers, particularly in London’s prime and ultra-prime neighbourhoods, is another reason for the rise in the overall asking price. “Any political uncertainty has been offset by a sharp fall in sterling and, with vendors being more open to offers, this has created a very favourable investment opportunity for foreign buyers who continue to view central London as a safe haven for their wealth. This is mainly due to the inherent long-term political and economic stability of the UK, its robust legal system and very transparent tax regime.”

Even though the UK does not offer a residency programme, Bathurst agrees that it is one of the best property investment destinations. “Our clients have also had a lot of success with student accommodation in the UK. This is one of the most resilient asset classes and has outperformed most of the property types, even during the 2008 recession,” she says.

“A case in point is The Laceworks in Nottingham. It is sold out and now fully constructed, on time, with 100% occupancy. Our clients are already receiving their guaranteed returns as promised.”

The Laceworks, a Hurst & Wills development

The Laceworks, a Hurst & Wills development in Nottingham in the UK

Financial services company Sable International has offices in the UK, SA and Australia and facilitates citizenship and immigration applications, among others. “South Africans are very comfortable going where people can speak English,” says group commercial director Andrew Rissik. “And culturally, places like the US, the UK and Australia work well. It comes down to our schooling system, the way we do business, the legal system, everything.”

Take the Plunge

Rissik advises clients to make up their minds about where they want to live and pay tax. “Currently, if you spend more than 183 days out of SA, you don’t need to pay tax here. Those at risk are people whose families live here and whose kids are being educated here,” he says. “They may spend six months or more out of the country, whatever the minimum requirements are in that tax year, but Sars sees them returning, so they are deemed tax-resident. From 1 March 2020, the first R1m they earn will be exempt but after that they’ll pay tax.”

According to Investec.com, “impending changes can only be mitigated by way of cessation of South African tax residency and not through formal financial emigration ie emigration for exchange control purposes. Where tax residency is based on the concepts of either being ‘ordinarily resident’ or ‘physically present’ in SA, unless a tax treaty determines otherwise, exchange control residency is based on the concepts of ‘domicile’, ‘citizenship’ or ‘permanent residence’ status in SA. Where a person financially emigrates from SA for exchange control purposes and obtains the right to reside in another jurisdiction, it doesn’t necessarily mean that tax residency has ceased too.”

Rissik says there has been a lot of scaremongering in this regard. “I recommend that affected individuals get professional advice on their particular circumstances and plan around that when it comes to #Tax2020.”

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