ACQUIRING
Funding for foreign
investments
SIDIMA MFEKU
Offshore investment is predominantly about accumulating
wealth in foreign countries and offshore jurisdictions. With
this form of investment there are various factors to be
considered before starting out as an investor - rates, tax
and levies included.
An example of an indirect investment would
be to invest in a trust company or a UK Real Estate
Investment Trust (REIT). In the UK, both REIT and
investment trust companies are approved by HMRC
and are listed on the London Stock Exchange. Most
trust companies are based offshore for tax reasons
and many are exempt from capital gains tax. They
also provide a cost-effective way of getting into the
global property market through stocks and shares.
Offshore UK property investment companies are
another indirect avenue to investigate, as are UK-
listed property companies. A few more indirect
investment options that you may wish to find out
more about regarding investing offshore include
UK Authorised Property Unit Trusts, Unit Linked Life
and Pension Funds and UK Real Estate Investment
Trust (REIT).
“Oftentimes, REITs receive
special tax advantages that
enable them to avoid corporate
tax, as long as they distribute
the overwhelming majority
(90%+) of their income
to investors”
REIT
O
ffshore investments are relatively popular
for their reduced tax levies. It’s beneficial
to, and often targeted by investors. While
investing offshore allows for a great deal of
business diversification and financial exposure, it
remains important for investors to do extensive
research about the charges coupled with investing
in other jurisdictions. There are various investment
options for investors intending to invest offshore.
The difference in options comes with different
levies per investment plan.
As an offshore investor starting out and hoping
to buy properties abroad for maximised wealth and
greater financial returns, it is important that you get
local investment exposure before investing in another
jurisdiction. This is because there are less (close to
none) funding models to finance a new property
investor in foreign countries. When hoping to buy
property abroad, one must physically move and start
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OFFSHORE GUIDEBOOK 2020
small for recognition and exposure. Otherwise the
property sector will remain a dream. However, there
are ways in which real estate investors can penetrate
through offshore investment indirectly.
Indirect offshore investment
Indirect offshore investment allows you to invest in
offshore assets (also known as global assets) without
the money physically leaving your jurisdiction. This is
done by a process called “asset swaps”. No tax clearance
is needed and the investment performance and
value is reported in the value of your currency. These
investments are simple to understand for investors.
Indirect property investment offers investors an
alternative route into the property and real estate
investment arena via the purchase of stocks and
shares in trust companies, pension funds, Real Estate
Investment Trusts (REITs), and the purchase of bonds,
stocks and shares in other listed property companies.
Real estate investment trusts are companies that
own and (most often) actively manage income-
producing commercial real estate. There are many
benefits to investing in REITs —
both domestically
and internationally. Oftentimes, REIT receive special
tax advantages that enable them to avoid corporate
tax, as long as they distribute the overwhelming
majority (90%+) of their income to investors. It's
worth noting that, despite avoiding double taxation,
the structure doesn't mean that REIT tax losses are
passed on to investors for use as carry-forwards or to
offset capital gains.
Rand-denominated offshore equity
funds investments
Having a valid and reputable track record in the real
estate sector locally or internationally is a definite
prerequisite to securing a funding deal to invest
offshore. This is almost impossible for first-time
investors. With the help of local rand-denominated
offshore equity funds, investors stand a chance of
growing their real estate horizons and at least start
building their portfolio.
Rand-denominated offshore equity funds
investment are local unit trusts that invest in a fund
of funds that are managed in another country (feeder
funds). You invest in a “basket of funds” with exposure
to more than one fund manager in one fund. As
a South African this would simply mean that you
are investing with your local currency in a bigger
company that has international business deals.
Many real estate hopefuls believe that offshore
property investment is for the already-established
but newcomers in the industry also have a space to
maneuver. The trick to it is to utilise the times at which
the rand is showing signs of volatility.
Investing in offshore property is not limited to the
top-most tier of the wealth pyramid. Regional Director
and CEO of RE/MAX in Southern Africa, Adrian Goslett
believes that “Though the process is much simpler if
the buyer has the funds readily available, acquiring a
home loan for foreign investments is possible, though
not simple. I would recommend that serious buyers
involve a financing expert who can advise them on
the various options that are available to them.”
Generally, a clean record of your past is needed
to verify the legitimacy of the person opening an
account or seeking funding for a project. This is no
different when seeking funding to start out as an
offshore investor.
“Unless you already have assets overseas to act as
collateral, or have residential status, it will be difficult
to get a local bank to finance your property. The
problem is that, when buying property outside your
country of residence, you’re treated as though you
have no credit score,” said Goslett.
He adds "Finding a bank that also operates in your
country of residence will improve your odds, as these
will be the only institutions that will consider your
credit scores valid”... “You might be required to take
out a life insurance policy for the mortgage amount,
naming the bank as the beneficiary. Depending on
the country and how old you are – this could be a deal
breaker since insurers in some countries place upper
age limits on who can take out a life insurance policy.”
Entrepreneurship is about taking risks. The more
calculated and informed risks taken, the better
chances of a successful business. But, taking business
risks in a single investment destination/jurisdiction
can be riskier and threatening to your business. It
simply means if the economy of your jurisdiction
collapses you are left with no business to feed from,
you are most likely to be bankrupt. Going offshore
gives one hope to lean on.
SOURCES Money web, The Balance,
Investec Asset Management
OFFSHORE GUIDEBOOK 2020
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