To Keep Property in SA or Not?

[HappyIsland]

We are emigrating to Oz in 2016, and are not sure what to do with regards to our property here in SA.

The property is a beautiful house on the beach, and I feel that the property can't be replaced again if sold as it has been in our family for a number of years, and the plan was to pass it down to my son when the time comes.

That being said, there is no denying that SA is on a steep downward spiral, and owning property here will become increasingly risky.

With farms being land-grabbed just like they did in Zimbabwe (50% of farms are now being taken by the state and redistributed to the farm workers.) At the same time, it is now no longer possible for foreign investors to buy private property here, and they have opened up a land reform backdoor to private property. This means even private property can become a target of land reform in the not so distant future.

I don't mean to sound doom and gloom, but one only needs to open your eyes, see what happened in the rest of Africa, and see what is currently happening in South Africa to realize what is happening in South Africa.

When land is taken from people, the concept that property is valuable no longer holds meaning. All property prices soon plummets, along with the rest of the economy.

Do we sell the property and use the money to purchase a new house?

Or is it better to keep the property and rent it out, whilst purchasing a 2nd property in OZ?

Financially, selling the property to finance a property in OZ makes sense. It will allow us to purchase a decent property in OZ near the beach and the City. This also takes out the risk of still owning property in SA.

Not selling the property means we can rent it out, but this also presents some challenges.

Rates and taxes are very high for the property, and what about maintenance? There's lots of maintenance to do on a yearly basis, and I am not sure how one would manage this from the other side of the world, let alone if this would be financially viable.

After maintenance, property taxes, and tax on rental income, I'm afraid that the rental income we will see in OZ would be dismal.

On the downside, if I sell the property it cannot be passed to our children one day. But then again, with the crime and job situation in South Africa, it is extremely unlikely that my young son (2 years) would ever want to return to come and live here, and he won't have any emotional attachment to the house or the Country.

I would appreciate some input from others on this.

For those of you not in the know about the Land Reform in SA, read here :

http://www.news24.com/SouthAfrica/Politics/New-land-reform-proposals-recipe-for-disaster-DA-20140624

http://www.fwdeklerk.org/index.php/en/latest/news/248-article-50-50-down-on-the-farms

http://www.bdlive.co.za/business/agriculture/2014/09/05/minister-encouraged-by-responses-to-land-policy-proposals

Edited November 22, 2014 by HappyIsland

[monsta]

Hey HappyIsland,

Agreed, your kid will grow up to be an Aussie, not a South African. There may be some cool factor in having a "family holiday house". But when he realises that its going to cost >$3000 per person to fly there. He is going to think, "I could go to Bali... stay in a hotel for 2 weeks, get really drunk... and with flights its < $3000 per person".

Also, Aussie property values have grown by an average of 7.5% over the last 30 years. So, you may not be able to afford more than one property here, even if you sell up both RSA properties; but your property here will appreciate in value a lot more.

If I were you, I would sell up the property and put the money into buying your family property in Aussie. But I would set some of the profits from the 2nd RSA home aside for your kid(s). They can use it one day as part of a deposit on their own home.

Have a look at this forum:

http://forums.whirlpool.net.au/forum/150?g=387

They can give you suggestions on good, stable, long term investments for a kid. For example, http://www.afi.com.au/Investing-for-Children.aspx

That way, when your kids get older, they will get a nice payout without being forced to manage tenants in some random property overseas.

[Nev]

My concern is that Aussie kids don't understand about crime and security, they would think a backpacking trip through soweto would be a great idea as they don't have to worry about violent crime here, it is just not on there radar.

Reminds me of that Au kid who decided to surf every beach around Africa, he spent a few months in an African jail for getting too close to some presidents beach home, will see if i can find the story

Do you really want to provide reasons for the kid to want to go and "experience" RSA, not understanding the first thing about keeping safe in a country like that?

[Jordy]

I would say sell sell sell.

We kept ours for 6 years and rented it. We sold it and here are the figures:

Value in 2008 R950 000 exchange rate R6.85/1 = $137000

Value in in 2014 R1100000 exchange rate R10.07/1 = $109000

In addition all the rent profit we received we paid tax on on Australia. 100% taxable.

All round it was a very bad bad financial decision to keep it.

[HadEnoughofJuju]

I agree with Jordy, sell. If you plan on making Aus your home then you don't want to live with the pain and suffering that goes with having property back in RSA. Think of it like a long term relationship, works at first but over time becomes a labour of love and eventually all you want is out.

If your plan was to pass it down to your son then sell, invest the money is Aus and hand that on to him when the time comes. It will be worth far more in ten years than the property in South Africa.

It's your choice in the end so whatever you do you have to be happy with it.

[RYLC]

Definitely sell and buy here. It will give you roots here rather than one foot still in RSA. The chances of an empty house being rampaged are also high. I wouldn't risk it.

[miran]

We recently had the same discussion with my father about the family beach house. We were honest and told him that we would not be visiting South Africa yearly and go to the same place every time. Been there done that. We want to start experiencing the world. Go to different destinations, starting with Tasmania ect. My brother loves camping and they want to go to different camp sites. End of the story: my dad is going to sell the house and is planning his first visit to us end of 2015. GREAT!!!!!

[Magenta]

While it is great to want to pass down a family home to your son, you unfortunately will also be passing on the problems too (managing maintenance from another country, tenants who don't pay, land redistribution, etc). If your intent is to give your family a new beginning and a better life in Oz, why give them a reason to HAVE to come back to SA to sort out a house. If your son decides to go back to SA, it should be because he wants to, not for property maintenance.

[Mara]

All I will say is you would be creating a huge headache for yourself, just sell the place and start your new life in Australia...

[KarinWise]

Sell, Sell , Sell!

There is just too much uncertainty in SA to ever keep a property there. The headaches and trauma it will cause you and your son are incalculable.

Do not put yourself through that!

One of my biggest forms of relief in this whole re-location process was that I could dispose of my SA properties and all the volatility associated with them, and start a new property portfolio here in Australia.

Hey, you pay a lot for property here, but it does hold it's value. When you rent it out, it has some checks and balances in place that make sure you actually get paid rent, as well as the fact that agents check on the condition of the property while it is being rented.

Have you never heard of the horror stories of renting property out in SAA, where people destroy your property with impunity, while not paying rent, and you cannot evict them. And sometimes you are left with their power bills?

Anybody been through that? I have, with a commercial property! It's a long and sad horror story.

So , again, I say -sell , sell, sell. I know a family beach house is sentimental, but sentimentality cannot come into this equation.

[rozellem]

Sell, sell, sell, run, run, run! A lot of us on here have the scars to show for what you are considering. Dont do it to yourself or your son. It will be an emotional albatross around his neck. Rather take the money and give your family the best possible chance in Aus, then buy property of real value that he will thank you for.

[Joeemm]

Just wanted to agree with everyone else, my family has a home in JHB wrapped up in a TrustFund and it's proving very difficult to get it sold. Also have friends who kept property, sort of in case they wanted to go back, now battling to sell plus moving Rands to Aus$ gets worse all the time. Emotions aside, Australia is generally rated as a much better long term investment in property.

[Orphan]

HappyIsland,

Based on your initial post, it seems that you have already done a good job weighing up all the pros and cons, and that the most logical decision is pretty clear.

Personally, I don't see any upside to keeping the property.

As an investment it is doomed, for the reasons that:

(i) It is highly risky. You have no security of ownership. Instead, there is the increasing risk of appropriation, and a very real chance of the property being occupied illegally.

(ii) Your return on investment will be negligible. Not only will you be saddled with rising property taxes and never-ending maintenance costs, but any increase in value will be negated by the anticipated increase in capital gains tax and depreciation in the rand.

(iii) The future of the South African property market is pretty bleak, and all long-term projections point to declining values and reducing demand

As a gift to your children, it debatable whether it will be of any value to them. On the one hand, it is highly possible that they may never use it; on the other, they will most definitely be burdened with the responsibilities (and problems) of ownership.

As the old adage goes, it is better to have a bird in hand, than two in the bush. Take the money while you can!

Edited November 24, 2014 by Orphan

[HappyIsland]

Thanks for the valuable input from everyone. It certainly helps a lot in making a decision.

The rational mind says sell :

- We can use the money to invest in a decent property in OZ. We can shop in a price bracket we would otherwise not be able to.

- We can start clean in OZ and not be tied back to SA.

- Use funds to build a better future. Emigration is expensive and you need all the help you can get to get a running start.

If we don't sell

PROS

- It's a lovely beach property with a view we will certainly not be able to afford again either in South Africa or anywhere else.

CONS

- We face certain rand devaluation

- Property in SA has a medium to high risk in the medium to long run (5-10 years)

- Rental income will be minimum after rental agent fees, property maintenance, property rates, tax on rental income and the flights back and forth to SA to manage the property.

- Face risk / difficulty in getting money out of SA if we do eventually decide to sell. (One would decide to sell anyways eventually).

So the rational decision is perfectly clear. Sell and move on.

Thanks everyone for offering sound advice. I will just have to put the emotion behind me and not look back.

[nelus87]

I was just reading through some old threads and came across this one 2 years later. I'm sitting in the same boat currently. The rental income on our property doesn't even even cover the cost of owning it. If I sell it now, I would probably take a bit of a knock, but I would be able to save an extra R2,000pm to put towards the Oz relocation costs

[Mara]

@nelus87 I see this is your first post, so welcome to the forum... I do not have any advice for you, as I have never been in this boat. All I can say is, when we left RSA 23 years ago, we had to sell our house at a loss, which was bad, but gave us freedom from worrying about it.

[WayneAndMel]

You should rather look at your loss situation  as a 'sunk cost' as in what's done is done.

 

You're undertaking emigration because of what the future holds. So rather look at it in that respect - and that could include your real loss getting worse if the ZAR:AUD rate worsens and the property price goes nowhere. It could get better but I've taken the view that the exchange rate will be hammered again in the short to medium term, especially if the country is finally downgraded by the debt agencies. 

 

The property market itself is also in a downturn and it's not clear when it'll recover. Usually property cycles lag the real economy - which itself is getting worse.

 

However this is my perspective on things and I'm also emigrating. 

[SandraDee]

If you have no intention of returning to S.A then sell. If you still own the asset when you move to Aus then you will need to pay capital gains on it in Australia when you sell and the capital gain is a lot higher in Australia apparently.  

[Jaws]

1 hour ago, SandraDee said:

If you have no intention of returning to S.A then sell. If you still own the asset when you move to Aus then you will need to pay capital gains on it in Australia when you sell and the capital gain is a lot higher in Australia apparently.  

Can anyone please confirm this?  Even if you have moved to Australia and then sell, and you have paid capital gains tax in SA, do you have to pay capital gains tax in Australia as well?

[SandraDee]

you will get the credit for the capital gain tax you paid in S.A  BUT  you will be subject to capital gain  in Aus which is a higher rate.

[WayneAndMel]

That also reminds me. Although it's not applicable in this case others debating what course of action to take where their home sale could result in a profit should realise they could also lose out on the SA primary residence exclusion on capital gains of R2 million if they only sell their property after they have emigrated, instead of before (for SA tax returns), unless a clause  on emigration grants some remedy. 

 

Non-residents in the eyes of SARS are regarded as liable for capital gains tax on immovable property in the country.

[adele75]

We are also contemplating this issue at the moment, the house market is so slow at the moment that we are concerned that selling the house will keep us in SA  longer than necessary.

 

[Gya]

On contrary I rented out mine and its working for me.  It cost me R1.4m two years ago and now rent it for R15k pm. that is almost how much rent I pay in West Melbourne a month. I did some basic economics calculations:- a basic property around West Melbourne costs $0.4m = R4.4m; yet if you rent it yields $1.6k pm = R20k. This made sense for me to keep the SA property. When it comes to administration, I handed it to a property agent and manage the city rates online.