How offshore investments in property can support your children’s future

Published Jun 22, 2024


By: Richard Haller

In the face of unstable local markets, South African parents wanting to provide their children with a strong financial legacy, are taking their investments offshore.

Why is offshore property a better option if you are considering your children’s inheritance or future?

If you want to ensure a stable future spend in a hard currency, you need to diversify your assets and build your revenue in that hard currency. If you plan on sending your children to an overseas university, you’ll need to have a revenue stream in the country’s hard currency. By doing this, you’ll protect yourself from unwanted surprises, such as the exchange rate fluctuating.

This is also applicable for people looking at spending six months overseas and six months in South Africa, as they need to have a hard currency spend. When you are travelling abroad, and you tap your phone for purchases the conversion back into Rands is frightening.

From a legacy stand point, leaving your children an offshore asset in a first world country with a stable hard currency is the best you can do. If you’re able to build a portfolio of two to three properties, which are decent yielding assets in good markets (6 -8% interest in hard currency), you’ll be building a good legacy for your heirs in the future.

Fundamentally, if you’re planning on doing something overseas in the future, you need to have a revenue stream in a hard currency.

What types of property investment should you consider and why?

A popular option is the offshore trust option. There are also pension fund structures, such as offshore pension fund structures that can hold investments, which makes sense from a tax and an inheritance tax perspective.

You need to consider the location you’re heading to, and what are the potential structures to use for wealth generation and protection. You’ll also need to consider the tax implications of being a South African resident, but having revenue abroad. Those are the main things which need to be considered.

From a property selection perspective, the fundamentals need to stack up: location; the supply and demand dynamic in the location (From a buying and selling perspective, as well as tenant demand).

There are a lot of questions which need to be answered: What’s the probability of buying a property and not being able to rent it out? What are the occupancy levels in the area? Is there capital growth potential? Will I get a decent yield on my investment? Generally speaking, a 4-5% rental yield in hard currency is a reasonable return.

New developments in good locations with good amenities and good supply and demand factors, such as regeneration areas in the UK are good options. New developments offer decent capital growth over time, and you should be able to find a tenant in the UK. This is a reasonably safe investment, especially as it is in Pounds.

The other option is looking at real estate high yielding investments. This may be a lesser location, but it’s an asset that may have a shop underneath with three apartments in the block, and you buy the whole block. You’d then renovate the block and potentially yield 8-10% on that asset. This is a higher yielding asset, but lower capital growth potential

Where could you invest in 2024?

The UK offers really good options. There’s an undersupply of housing in most locations in the UK. There’s a lot of new developments and regeneration areas in the UK. It also offers the lowest entry level point. It’s possible to buy a small flat for GBP 130 000, this should provide a 6-7% yield.

Mauritius has been a great US Dollar real estate investment. There’s been solid capital growth in Mauritius. It’s a business-friendly country with a lot of foreign direct investment from Europe. It’s a very interesting market. An investment of USD 375 000 gives you permanent residency, provided you hold on to the property.

From a price per square metre perspective, Greece is a great option. A starting investment point in Greece is EU 250 000, this qualifies you and your family for the Golden visa, as well as a decent real estate investment.

A location to look out for in the future is Hungary, especially with the redevelopment of Budapest and their Guest Investor Permit. Hungary is a member of the European Union, which makes it an attractive investment option.

Other attractive options include Portugal and Grenada. The Portugal Golden Visa grants your children passports and access to living in Europe. Grenada citizenship allows 6 months consecutive stay in the UK and 3 months out of every 6 months in the European Union.

What should you be wary of? What are the risks and how can you mitigate these risks?

There have been horror stories of people losing their money because they paid the wrong party, or they did not understand the legalities. When doing business in a foreign jurisdiction, you don’t know what you don’t know. You need to find the right partners, who will be able to guide you along the way. Some generational wealth structures work better in certain jurisdictions. It is important to understand the laws and legislation regarding non-resident, ownership or foreign ownership.

* Haller is the managing director at Sable International.