Although the attraction of a foreign passport may be all it takes to lure South Africans to invest in foreign markets, there are pitfalls in some overseas investment deals.
Nothing in life is free and in Mauritius for example, investors who buy into an Integrated Resort Scheme scheme and invest $500 000 will receive residency. However, if the property is sold, the investor loses the right of residency. In effect, this means that anyone who buys into this scheme is actually only “renting” the right to reside in Mauritius.
When one looks at the fundamentals of the Mauritian property market and understands that the majority of the opportunities are based on the tourism markets, the numbers do not stack up.
According to the 2011 Mauritian Housing Census, the building inventory increased by 43 200, or 16.1 percent, from 2000 to 2011. Buildings categorised as hotels, tourist residences and guest houses experienced a much higher growth almost trebling from 400 to 1 100. This represents 0.3 percent of the market. Due to this lack of sophistication, there is virtually no research or empirical evidence. Investors have to hope that other international buyers continue to invest in island properties and that tourism remains strong enough to ensure the promised yields as this type of property is not affordable to the local population.
Cyprus also offers incentives for those investing in property in that country. By investing €300 000, investors receive temporary residence and can apply for a passport after five years. While this may look good on paper, the picture changes somewhat when one looks at the fundamentals of the market. Liquidity problems, record levels of unemployment (which has doubled in last 30 months) and huge uncertainty in the market (Cyprus banks are tied to Greece) continue to send the country’s property market into a tail-spin.
Property sales have been down for 16 consecutive months, and 11 percent down on 2009 when the market crashed. According to the Cyprus Property News, in February 2012 the overall, overseas sales were down by 36 percent (in some places as much as 90 percent) due to huge problems with legal title and the deeds office in Cyprus.
In addition, the serious over-supply of market stock is weakening occupational and investment demand and the consequences of a worsening Greek banking situation do not bode well for the Cypriot real estate market. The situation has, according to one analyst, been made worse because speculative supply kept being added “long after demand began to weaken”. The Cyprus Property News also reported in December last year that property prices in general have lost 30 percent. Based on this, it is no wonder that the Cypriot government is doing whatever it can to get foreign direct investment in an effort to stimulate the property market, and is using passports to make this more attractive.
While the attraction of a Green Card may seem to be enough to lure property investors to the USA, there is a hitch.
In the USA there are Federal Schemes called EB5s where investors invest $500 000 and are then given a Green Card. The EB5, however, only applies where the government needs to revitalise areas and create jobs. This may sound very tempting until you evaluate the returns of three to four percent – and this in a new development in Florida. The State of Florida, according to a report by CNN Money in January this year, has the worst-affected property market in the USA with massive oversupply problems and repossessions. The effects that this will have on the long-term market are questionable, even if the development were to proceed.
Many South Africans who invested in Malta were lured into the deal with the promise of a passport. After they bought, however, the Maltese government changed the rules and now they have an average investment in a mediocre market, with no passport.
Unfortunately, there are many more examples, but in all cases, only the uninformed would delude themselves that they were buying an investment when investing in these types of deals. Sophisitcated investors understand that like buying a boat, it may be nice to have, but it is an expense and quite a large one at that, simply to obtain the dubious luxury of a foreign passport.
Assets and income
The bottom-line is that if you want to become a global citizen you have to invest in first-world assets and have a first-world income to ensure that you can grow your wealth. If you make the right investment decisions, your global wealth will ensure that you and your family have the luxury of living wherever your investment permits.
While investing in international property can assist individuals with immigration and citizenship, investors should weigh the opportunities being offered against the privilege. It is interesting to note that there are investments that are backed by solid fundamentals in Australia, the UK and the USA. Such property does not, however, come with the promise of a passport. Sophisticated investors focus on the investment, the returns, the risks and creating global wealth, as it is these elements that will take care of their future.