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Monday Jul 27, 2009

'Local is still lekker' when comparing prices

Since the onset of the global recession there have been numerous advertisements in the South African media for "bargain property" buys in the UK, US and Europe, says Tony Clarke, MD of Rawson Properties.

Some advertisements are claiming the prices are 40-50 percent lower than they were at peak - and South Africans are advised to make use of the new strength of the rand to benefit.

"Although there is some truth in these statements," says Clarke, "prospective buyers should be aware that the dangers facing any buyer dealing in a country where they aren't actually living are always great. Also, the potential returns and/or capital appreciation are almost always just as good, if not better, here in South Africa than they are offshore."

Anyone who wants to buy property overseas should be aware that, though it is possible to borrow from banks in certain countries for this purpose, they will, as in South Africa, be scrutinised carefully as to what they can genuinely afford and at what level their other debts are running. Thorough checks will also be made to ascertain the present real value of the property.

Potential buyers should realise too that overseas countries also charge fees for the estate agency's services, mortgage registration, land registration and other services. These fees are likely to be very different from those that apply in South Africa, and some will be totally unexpected.

Then, too, as in South Africa, the UK or US, banks will not lend a foreign buyer more than 50 percent of the total price or property value, whichever is the lesser.

"Always arrange your mortgage finance 'in principle' before agreeing to buy a property or signing a contract and, most importantly, do not pay a deposit until such finance is in place," says Clarke.

"There is always a danger that South African buyers will sign what appear to be standard agreements, only to find they have not fully understood certain clauses. If you don't understand a contract, especially if it is in a foreign language, you should not sign it.

"It is absolutely essential to ensure that buyers really do understand what every line of the agreement means. We advise our clients to consult independent attorneys, surveyors, architects, other agents and municipal officials and always to get more than one opinion, especially about values."

When signing an agreement to purchase, says Clarke, it is important that the wording makes it clear that the deal is subject to the finance being granted. The agreement should also have an opt-out clause for the buyer, and a reappraisal cooling-off period.

Also, where possible buyers should arrange their mortgage in the currency they earn, unless they receive rental income. In that case the monthly debit orders and rental income from the property should be paid in the local currency to avoid exchange duties on every transfer.

"It is usually a good move to open a bank account in the country where you are buying, and to get a certificate of importation. You can then arrange for all taxes, bills and bond repayments to be done through the foreign bank - but check regularly that these sums are market-related and are paid on the due date."

Clarke says that in many overseas countries the banks or the local authorities have the right to seize a property on which money is owing - and they will do so.

"Always get a solicitor to check that you do not inherit debt on the property, before you buy.

"Do be careful to set a realistic budget," he adds. "And, as in South Africa, a small percentage of tenants will be unreliable, the type who see a landlord as easily ripped off. As here, therefore, it is absolutely necessary to have a local agent who understands credit and past record checks.

"All in all, in property investment, local is still lekker," says Clarke.

'The potential returns are just as good in SA'

Weekend Property Supplement (Saturday Argus)




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