Is investing in overseas property a wise move?

Almost every one of those members of the general public who are considered by marketing experts to be potential investors of one kind or another are, says Tony Clarke, Managing Director of the Rawson Property Group, ‘bombarded’ by emails or other marketing outlets aiming at persuading them to buy property overseas.

“A whole range of arguments and taglines are lined up in favour of this course,” said Clarke. “The list tends to include such things as: (1) assurances that the legislation in the proposed country is friendly towards and aimed at safeguarding non-resident owners (in some cases discounted rates, tax benefits, bank packages and even dual residency is offered) and (2) interest and inflation rates in this particular country are the lowest they have ever been.

“Then there is the argument that the currency in which the country is offered has proved to be more resilient to global economic cycles and therefore offers a wonderful hedge against a depreciating rand.”

All of these arguments, said Clarke, have merit but when he is asked, as he often is, whether he can seriously advise in favour of investing in overseas property, he is always very hesitant to do so.

“I have looked at this matter time and time again,” said Clarke, “and I find that, for myself at least, I always prefer the South African investment option to that available overseas.”

The reason for this, he said, is quite obvious: property needs care and maintenance. It also needs a good tenant, regular rent collection and on-going management. The further away that property is from the investor’s home, the more difficult it is to do these fairly straight forward, simple tasks and, once they go wrong, the difficulties always tend to escalate.

“Furthermore, when things do go wrong,” said Clarke, “the situation can often be complicated by the host country’s legislation not being as friendly as the marketing media led one to believe and by the fact that the agent (if you have one) and others, such as maintenance staff and contractors, have fairly often been known to ‘rip off’ the absentee landlord.”

“There have,” said Clarke, “been cases where repairs such as the replacement of geysers, floors, electrical systems and even roofs have been deemed to be necessary when a simple inexpensive repair would have done the job equally well. The costs involved here are also higher than the landlord would expect to pay due to the differing currencies. Then, too, where legal action does become necessary, for example against the tenant, experience has shown that this can also be very expensive, often two or three times the cost of local legal work, which in any case is already fairly high.”

All in all, therefore, said Clarke, the advice is to stick to your home turf and invest as close to your own doorstep as possible.