South African investors should be cautious about taking advantage of the increased offshore investment allowance, especially if they are contemplating property investments, says Bill Rawson, Chairman of Rawson Properties.

The SA Reserve Bank recently announced that up to R4 million a person can now be invested overseas by South Africans. This, Rawson believes, is a calculated move to weaken the rand against foreign currencies, discourage imports, enhance export earnings and attract foreign investment.

“All sorts of difficulties crop up on foreign property buys and even the best SA lawyers are not always aware of these,” says Rawson.

“To take just one example, the conditions under which mortgage bonds are issued may be different from those in South Africa: certain foreign banks limit the term of their bonds to relatively short periods after which they reserve the right to alter the interest rate. Some countries actively deter foreign property ownership and make it exceptionally costly. The capital gains tax for foreigners can be prohibitively high – and any lack of documentation or mistakes in documents can result in huge penalties and delays. SA is actually ahead of the pack in facilitating home ownership.”

Rawson warns, too, that neither the capital appreciation growth rates nor the return on investments overseas are likely to be as high as in SA.

“Commercial property here is still giving an average return of 8.5% and residential returns are around 5 to 6%. Listed companies like Redefine have again been able to lift their dividends and by the end of next year capital growth in property generally could average 9%. Prime CBD overseas property in London, Monaco and Brussels gives nowhere near these returns because they are linked to their low interest rates and to local economies which for the next few years are unlikely to match the growth of the mineral-rich, cheap labour economies of the emerging world.”

Rawson says foreign investors can now be safely pointed in the direction of SA residential property, especially as the 2010 euphoria, “although limited to a year or two”, is already having an effect, for instance, on rentals in homes close to stadiums and in B & B bookings.