EXCHANGE RATES
Discretionary Allowance
The benefits of using your discretionary allowance
Offshore Property and the volatile Rand
BY ANDREW RISSIK
Offshore property investing as a hedge against local volatility
South Africa has always been deeply integrated into a capitalist international political economy. As a result, external factors in the global economy have an influence on our economy domestically. The very government that manages our economy today was born from the party that used internal tactics to influence market dynamics abroad. In the late 20th century, these strategies had powerful effects, eventually coercing the previous regime to make changes to our political landscape.
Ironically, the current government is now being punished by international markets in a similar way. The disregard for the capitalist disciplines of a modern globalised economy, in favour of a blatantly communist system based on patronage and abuse of power, influence international market dynamics where South Africa is concerned.
With this in mind, one needs to understand that as much as we may love South Africa, our local volatility is being further accentuated by this poor economic management. Post 1994 South Africa entered an era of excitement at the prospects of the rainbow nation flourishing. This has soured somewhat since then. The ANC, while in exile, learned the doctrines of a failed communist system. This, coupled with misgovernance and sometimes a total lack thereof, in combination with the end of the commodity boom and dwindling protection from a friendly international community, leaves South Africa very exposed. The country is heading for an investment crisis.
Foreign investors are also shying away due to policy uncertainty surrounding the rights of land ownership,
as well as tough and unclear BEE guidelines and a very militant labour force. Whilst the Rand is“ cheap”, our labour productivity is so uncompetitive that potential returns for the perceived risk are simply not worth it. The ANC is business-unfriendly and dislikes Western powers unless, of course, they need something from them.
Tax payers are put under massive strain in SA whilst the government wastes billions of Rands through incompetence and corruption. Disposable income is at an all-time low. An offshore investment should be viewed as a possible yield-generating asset that can derive a hard currency income. This would not only be good for South Africa as hard currency returns are brought back home, but good for the investor too. With all the above in mind, seeking a good offshore investment may be expensive in the short-term, but it could well pay handsome returns long-term.
How to manage your mortgage: Be wary of your gearing If you use your investment funds to purchase an offshore property and you apply for a mortgage bond abroad, you need to be sure that you will always be able to service your payments from a Rand-based income. Be aware that as international interest rates climb, the Rand could well devalue and this could put you in dire straits financially.
RESOURCES
Sable Group
60 AUGUST 2016 SA Real Estate Investor www. reimag. co. za