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Moving with the times

Oct 8, 2017 | Featured, Property Investment

Forget pension funds and private equities. Increasingly, the most valuable asset in the portfolios of wealthy South Africans is a second passport

Global wealth migration is accelerating. According to New World Wealth’s Global Wealth Migration Review 2017, about 82 000 millionaires migrated in 2016, compared with 64 000 in 2015. Millionaires – or high-net-worth individuals (HNWIs) – are those with a net asset of $1 million (almost R13 million) or more, excluding their primary residence. According to the latest data from investment-migration firm Henley & Partners, acquiring an alternative nationality has become a $2.4 billion per year industry, with several thousand HNWIs around the globe seeking a second, or even third, citizenship every year. Africa’s wealthy are no exception. New World Wealth’s Africa Wealth Report 2017 puts the number of African HNWIs who at the end of 2016 owned a second home in another country at 34%. Popular cities for such homes included London (at approximately $41 500/m2 for a 200m2 apartment in the prime part of the city), New York (at $33 000/m2 for the same), Sydney ($20 800/m2) and Melbourne ($15 000/m2).

Millionaire volumes in South Africa, which is home to more than 40% of the continent’s HNWIs, making it the largest market in Africa, are expected to reach 42 300 by the end of the year, up from 38 500 at the beginning of 2016. This number could have been considerably higher, according to New World Wealth, were it not for the significant number of HNWIs leaving the country. Based on its Global Wealth Migration Review 2017, this market-research firm estimates that South Africa lost nearly 1 000 millionaires to emigration in 2016. According to the survey, the top reason HNWIs left the country was economic uncertainty, followed closely by the inability to deal with changing social dynamics in the country and concerns for their children’s future. Considering the global appetite for alternative nationality, it’s hardly surprising, then, that the number of residence and citizenship-by-investment programmes is proliferating, with a further slew to be announced in 2018.

“Recent European reforms mean that, for example, the Cyprus citizenship-by-investment programme now offers more affordable access to the EU, with the minimum investment reduced to €2 million,” says Nigel Barnes, managing partner at Henley & Partners. “Investment options have been restructured, and now include the choice to invest in real estate or development land. “Also in Europe, applications for the Malta residence and visa programmes opened last year. This gives individuals the right to reside, settle and stay indefinitely in Malta, with free movement of travel within the Schengen zone.” Elsewhere, in the Caribbean, Grenada’s citizenship-by-investment programme has recently been reformed, Nigel says. It now offers visa-free travel to all major countries and double taxation treaties with the Caribbean Community (CARICOM) countries and the UK, as well as an E-2 Investor Visa Treaty, giving successful applicants the right to enter, live, work and stay in the US. Importantly, in the context of continued rising demand for overseas property, the fact that such schemes offer property as an investment route is a powerful draw, Nigel notes. Here is our annual round-up of the top destinations for South Africa’s wealthy, with a focus on those offering residence or citizenship by way of investment.

01. UNITED KINGDOM

RESIDENCE AND CITIZENSHIP

Citizens of countries outside the EEA and Switzerland can apply for a Tier 1 (Investor) visa, which allows applicants to reside in the UK for three years and four months. For those who wish to set up or run a business in the UK, the Tier 1 (Entrepreneur) visa requires a smaller investment and grants applicants the same residence rights.

INVESTMENT CRITERIA

For the Investor visa, you need to invest £2 million or more in UK government bonds, share capital or loan capital in active and trading UK registered companies, excluding businesses mainly engaged in property investment, management or development. For the Entrepreneur visa, you need £50 000 to set up or take over one or more companies.

HOW IT WORKS

The Investor visa allows you to live, work and study in the UK for its validity period. The visa can be extended for a further two years and you can apply to settle indefinitely in the UK after two years (with an investment of £10 million) or three years (£5 million). The Entrepreneur visa grants the same duration of stay and can also be extended for two or three years. Applicants can apply for indefinite leave to remain after five years.

PROPERTY

London house prices slowed sharply in the second quarter of 2017, rising at their weakest rate in five years, according to Nationwide Building Society. Figures from the Council of Mortgage Lenders show that sales to landlords have almost halved over the past year. As a result, the body, which represents UK banks and building societies, cut its forecast for 2017 and 2018 buy-to-let lending in June this year.

EDUCATION

According to the QS World University Rankings for 2017, four of the world’s 10 best universities are located in the country and, for university-industry collaboration, the UK ranks in the top five globally. “Currency, quality of life and access to the best universities are the key trends boosting demand for a British education,” says Ed Richardson, director of Keystone Tutors.

TAXATION

Tax residents are subject to normal UK tax laws, but those who keep their assets separate prior to settling in the UK can be taxed on a non-domicile basis. It is advisable to speak to a tax consultant.

FOR MORE INFORMATION

gov.uk/visas-immigration

02 UNITED STATES

RESIDENCE AND CITIZENSHIP

The EB-5 Regional Center Program offers overseas citizens the opportunity to qualify for permanent US residency (a green card). There are 10 000 EB-5 immigrant visas available annually, of which 3 000 are set aside for foreign nationals who invest in regional centers designated by the United States Citizenship and Immigration Services based on proposals for promoting economic growth.

INVESTMENT CRITERIA

“Each EB-5 investor must create 10 direct or indirect permanent jobs for US workers to obtain a green card,” says Lisa Czepek, client advisor at citizenship-planning firm Henley & Partners. “Investments in areas with an unemployment rate of at least 150% of the national average rate qualify with a minimum of $500 000. For investments in other areas, the minimum is $1 million.”

HOW IT WORKS

There are no language, business or education requirements for EB-5 applicants. The investor, his or her spouse and unmarried children under the age of 21 are eligible to apply for a green card. Residents must not live outside the US for one year or more, unless they have a re-entry permit.

PROPERTY

After five years of strong house price growth, the US market remains robust. That said, New York had its challenges in 2016. The strong US dollar negated some overseas interest and new luxury projects helped inflate supply, says Kate Everett-Allen, Knight Frank’s head of international residential research. But, while volumes slowed, prices have proved resilient.

EDUCATION

Six of the top 10 universities in the 2016–2017 Times Higher Education World University Rankings are American. The US also offers high standards of free primary and secondary state schooling.

TAXATION

EB-5 investors are generally non-resident aliens (NRAs) until they are permanent residents. Thanks to a dual tax treaty between South Africa and the US, NRAs – foreigners who’re present in the US for fewer than 183 days per year – pay 30% tax on US-sourced income that is not connected to a US trade or business. Foreigners are, however, generally not taxed on capital gains from US sources, says Jacob Stein, partner at Klueger & Stein.

FOR MORE INFORMATION

americaregionalcenter.com/index.php; uscis.gov

03 MALTA

RESIDENCE AND CITIZENSHIP

The Malta Individual Investor Programme requires an economic contribution to the country. In exchange, applicants and their families are granted full citizenship to a stable EU country. A Maltese passport grants you visa-free travel to more than 167 countries.

INVESTMENT CRITERIA

Applicants must contribute a non-refundable €650 000 to the National Development and Social Fund. An additional contribution of €25 000 is required for a spouse and for each child under the age of 18. In addition, you must either purchase residential property in Malta with a minimum value of €350 000, which must be held for five years, or lease a residential property for at least €16 000 per annum for five years. The property cannot be let during this period. Alternatively, applicants can invest €150 000 in a prescribed investment, which must also be held for five years.

HOW IT WORKS

Applicants must have been a legal resident of Malta for one year prior to being issued with a certificate of naturalisation. This does not necessarily mean you are required to live in the country during that period. The passport is issued within two years from the date of application.

PROPERTY

The Maltese property market remains one of the most resilient in Europe. “Property prices increased by 8.4% at the end of 2016, which was even steeper than the 5.5% recorded between June and September of the same year,” says Chris Immelman, MD of Pam Golding Properties’ International Division. Chris adds that the island’s tourism appeal continues to impact the surge in property demand.

EDUCATION

As a former British colony, Maltese state schools are based on the British education system. All children between four and 16 years have the right to free education in state schools. About 30% of students attend private schools and there are three international schools. The University of Malta is the highest educational institution and is the oldest university in Europe.

TAXATION

Only individuals who are resident and domiciled in Malta pay income tax on their worldwide income. Personal revenue is taxed at progressive rates of up to 35%.

FOR MORE INFORMATION

foreignaffairs.gov.mt

04 AUSTRALIA

RESIDENCE AND CITIZENSHIP

There are three main streams of visa class within the Business Innovation and Investment category: the Investor Visa, the Significant Investor Visa and the Premium Investor Visa.

INVESTMENT CRITERIA

For an Investor Visa, at least A$1.5 million invested in a state or territory government security, held for four years. The Significant Investor Visa requires a four-year investment of A$5 million, split between Start-ups and small private companies, emerging listed companies and various approved assets, including commercial property. The Premium Investor Visa can only be obtained via nomination by Austrade on behalf of the government and requires a one-year investment of at least A$15 million in complying options, from bonds or notes to philanthropic concerns.

HOW IT WORKS

The Investor Visa grants the applicant temporary residence in Australia, which can be converted to permanent residence once the investment has matured, provided he or she has lived in Australia for two years. The Significant Investor Visa is a four-year temporary visa but the applicant need only spend 40 days per year in the country to obtain permanent residence when the investment matures. The Premium Investor Visa must be held for one year before applying for permanent residence.

PROPERTY

Property prices in Australia’s capital cities have increased by an average of 11% over the past year. Most of that growth has come from Sydney and Melbourne, which gained about 15% each. Australia’s AAA-rated economy is forecast to realise average annual GDP growth of 2.9% until at least 2020.

EDUCATION

Australia spends 5.3% of its GDP on education, according to the 2016 United Nations Human Development Report, and, at 20.4 years, the average duration of schooling is one of the longest in the world. Australia ranks 10th in the Universitas 2017 U21 Ranking of National Higher Education Systems, above even Germany and Japan.

TAXATION

Foreign residents are taxed in Australia on income earned from their Australian investments. Residence status determines the level of tax you will pay.

FOR MORE INFORMATION

border.gov.au; mara.gov.au

05 PORTUGAL

RESIDENCE AND CITIZENSHIP

The Portugal Golden Residence Permit Program is a five-year investment-based residence process for non-EU nationals. The permit allows free movement in the Schengen area and requires an average stay of 35 days in Portugal over this period (a single process-motivated visit is feasible), which can count towards citizenship after six years.

INVESTMENT CRITERIA

The Golden Residence Permit Program offers three qualifying investment routes, which must be maintained for a minimum of five years to obtain residency. The capital investment options range from €250 000 to €1 million. The most affordable route is an investment to support the country’s national cultural heritage. There are also a number of real estate options. The minimum investment is €350 000 if you are planning to refurbish a property older than 30 years or invest in an area of urban regeneration. The business investment option grants residency should entrepreneurs create at least 10 new jobs in the country.

HOW IT WORKS

“The capital transfer option is a straightforward route and can include investments in stocks and shares,” says Henley & Partners’ managing partner Nigel Barnes. “There is also an excellent and diverse property offering.” Eligibility for naturalisation is possible after six years of residence and compliance with requirements, including some knowledge of Portuguese.

PROPERTY

There has been an injection of €1.56 billion in new residential investment since the inception of the Golden Residence Permit scheme in 2012, says Chris Immelman, MD of Pam Golding Properties’ International Division. Lisbon in particular has experienced a surge in property development, but still offers good value by international standards.

EDUCATION

The Portuguese standard of schooling is high and the country has good international schools. The University of Lisbon and the University of Porto provide tuition in English and Portuguese.

TAXATION

Personal tax for non-residents on Portuguese-sourced employment and pension income is 25%. Interest on rental income, dividends and capital gains is taxed at 28%.

FIT FOR A KING

Situated at the top of the vibrant Alfama neighbourhood with striking city and river views, Santa Helena is Lisbon’s most iconic palace. It is now in the process of being overhauled as a luxury 21-unit apartment complex, due for completion towards the end of 2018. The one- to five-bedroom apartments, two of which will have a private pool and garden, sell for between €650 000 and €2.85 million. Besides contemporary furnishings, the apartments will include elaborate tile friezes and frescoes, and high pressed ceilings. Each has underground parking, a rarity in Alfama. pamgolding.co.za/property-development/lisbon/santa-helena

FOR MORE INFORMATION

goldenvisa-portugal.com

06 NEW ZEALAND

RESIDENCE AND CITIZENSHIP

There are two Investor business migration visas: the Investor Visa and the Investor Plus Visa. To qualify for citizenship, you must have held a residence permit for five years and have spent at least 240 days a year in New Zealand for each of those five years.

INVESTMENT CRITERIA

The Investor Visa requires a minimum of NZ$3 million to be invested for four years. For the Investor Plus Visa, applicants must invest at least NZ$10 million for a period of three years.

HOW IT WORKS

Acceptable investments include equity in public or private New Zealand firms or bonds issued by the New Zealand Government, local authorities or approved banks, finance companies or fi rms. Up to 15% of the investment total can be philanthropic. Visa holders who invest at least 50% of their funds into assets other than bonds and philanthropic investment qualify for a reduction of NZ$500 000.

PROPERTY

A May 2017 report by global finance company Goldman Sachs pegs the New Zealand housing market as the most overvalued among the G10 economies. It predicts a 40% chance of a housing-market bust (when house prices fall 5% or more after adjustment for inflation) in the next two years. In Auckland, the average house price has shot up 91% since 2007 to more than NZ$1 million. Data from real estate portal Trade Me Property, however, shows that the average asking price of the typical New Zealand property dropped only slightly – by 1.2% – in June to NZ$632 850.
EDUCATION High-quality state schooling is free for residents and citizens. The UN Education Index consistently ranks New Zealand among the world’s best. The country’s eight universities are all on the 2017/18 QS World University Rankings. On individual subjects, the QS rankings also place New Zealand universities among the world’s top 50 for disciplines such as accounting and finance, computer science and veterinary science.

TAXATION

South Africa enjoys a double taxation agreement with New Zealand, which means that you’re exempt from taxes in that country if you stay for no more than 183 days in any 12-month period.

FOR MORE INFORMATION

immigration.govt.nz; newzealandnow.govt.nz

07 CYPRUS

RESIDENCE AND CITIZENSHIP

The Cypriot Permanent Resident Program was designed to boost the local property market. Its main requirement is the purchase of residential or commercial property or both. A fast-track application procedure of two months and a high approval rate if all criteria are satisfied are among the key advantages. Meanwhile, recently lowered capital requirements, which are 100% investment-based, and fast-track approval make Cyprus’ Citizenship-by-Investment Program attractive. Citizenship is transferable by descent.

INVESTMENT CRITERIA

Cypriot permanent residence requires a property investment of at least €300 000. Cyprus’ Citizenship-by-Investment Program requires a minimum capital investment of €2 million, which can be spread across real estate, land development and infrastructure projects.

HOW IT WORKS

Applicants of the Cypriot Permanent Resident Program may purchase up to two residential properties, or one residential unit and one shop, or one residential unit and one office, provided that the combined value exceeds €300 000. To qualify for citizenship, the primary applicant must invest at least €2 million in, for instance, the purchase or construction of property, and must own a permanent residence of at least €500 000.

PROPERTY

There has been a boom in the property market over the past two years, especially from foreign buyers. By the end of 2016, the island recorded a year-on-year increase of 121% in real estate sales.

EDUCATION

Cyprus spends more than 7% of its GDP on education, the third-highest share in the European Union after Denmark and Sweden. Its top-rate schooling system is based on those of Europe and the US. Several international colleges and universities offer dual-degree programmes fully accredited by the UK and USA partner universities.

TAXATION

Individuals are considered tax residents if they spend more than 183 days per year in Cyprus. Personal tax on income generated in Cyprus is taxed at progressive rates of up to 35%. Immovable property tax is levied at 0.6% to 1.9% of its value – this is calculated per owner, not per property.

FOR MORE INFORMATION

cyprusvisa.eu

08 GRENADA

RESIDENCE AND CITIZENSHIP

In terms of its visa-free access to the world’s largest consumer markets, Grenada’s citizenship-by-investment programme is unrivalled. Acquired in exchange for an investment in a government-approved asset, which can include property, Grenadian citizenship is generally granted in four months and is transferable by descent. The island nation’s citizenship-by- investment programme has the lowest capital requirement when compared with its Caribbean neighbours, St Kitts and Nevis, Antigua and Barbuda, and St Lucia. It is the only country in the region with a citizenship-by-investment programme that holds an E-2 Investor Visa treaty with the US, where citizens can apply for a non-immigrant visa to the States.

INVESTMENT CRITERIA

To qualify for citizenship, the main applicant must either acquire property from a government-approved real estate project for a minimum of $350 000, to be held for three years, or contribute a non-refundable minimum of $200 000 to the National Transformation Fund (NTF). Under the property option, there is an additional flat government fee of $50 000 for the main applicant and up to three dependents.

HOW IT WORKS

Once an application is submitted, the Grenadian government should provide an initial answer within 60 days. For the property option, the time frame may vary depending on the project.

PROPERTY

Residential and commercial property has been buoyed by Grenada’s citizenship-by-investment programme. Last year, real estate transactions on the Spice Isle surpassed $50 million and, at a growth of 23%, set a new high. Foreign buyers accounted for 20% of the total property sales.

EDUCATION

Grenada boasts the world-class St George’s University, which offers degrees in medicine, veterinary medicine, arts, sciences and business. Its medical faculty consistently outperforms those in even the US and Canada.

TAXATION

The first XCD 36 000 per annum (about $13 000) is exempt, the next XCD 24 000 (about $9 000) is taxed at 15% and the excess at 30%. The flat tax rate for companies is 30%. Property transfer tax for citizens is 5% payable by the seller.

PASSPORT TO PARADISE

Named after the leatherback turtle that frequents the waters around Grenada, Kimpton Kawana Bay is a new five-star resort with an enviable location on Grand Anse Beach, which is ranked in the top 30 of CNN Travel’s World’s 100 Best Beaches. Priced from $350 000, units in the development, which are for sale on a freehold condominium basis through the island’s citizenship-by-investment programme, include one-bedroom studio apartments and one- to three-bedroom penthouses. The Kimpton Hotels & Restaurants group, the world’s largest boutique hotel operator, will manage the resort. pamgolding.co.za/property-development/grenada/kimpton-kawana-bay

FOR MORE INFORMATION

cbi.gov.gd; caricom.org

009 MAURITIUS

RESIDENCE AND CITIZENSHIP

A non-Mauritian citizen is eligible for a residence permit after purchasing a residential property under the Property Development Scheme (PDS). Mauritian residence has a number of tax and lifestyle advantages, and offers citizens of the Southern African Group of Countries additional incentives, such as being able to move unlimited capital into certain real estates in Mauritius without being subject to the exchange control restrictions of the South African Reserve Bank.

INVESTMENT CRITERIA

Where a residential property is acquired by a non-citizen under the PDS, the investment must be at least $500 000 and must be financed by the purchaser from funds outside Mauritius.

HOW IT WORKS

Non-citizens of Mauritius as well as their dependents can apply for a residence permit through the PDS programme. The residence permit remains in force for as long as the residential property under the scheme is held in the non-citizen’s name. The PDS project includes villas, apartments and penthouses, and the owner can rent out his or her property.

PROPERTY

“Several years after the government decided to open the island to wealthy foreign homebuyers, the property market continues to thrive,” says Chris Immelman, MD of Pam Golding Properties’ International Division. “Forecasts show that property prices in Mauritius are expected to increase by 40% over the next decade, making it a major player in the global property investment game.”

EDUCATION

As a former British colony, the Mauritian education system is largely based on the British system, with education in English. The government provides free education to its citizens from pre-primary to tertiary level. Transport for all students is free.

TAXATION

Mauritius is a major tax haven thanks to company and personal income tax rates set at 15%. These can be as low as 3% after allowing for tax credits through the GBC1 structure (Global Business Company – International Revenues). The island boasts double taxation agreements with 36 countries and there are no capital gains or inheritance tax on properties.

FOR MORE INFORMATION

govmu.org; maurinet.com

10 CANADA

RESIDENCE AND CITIZENSHIP

Obtaining Canadian citizenship requires applicants to reside in Canada permanently for four years out of the six preceding the application. The Quebec Immigrant Investor Program is the only way to obtain permanent residence through passive investment.

INVESTMENT CRITERIA

Applicants must have managed or operated a qualified business for at least two of the five years preceding their application, have a net worth exceeding C$1.6 million and have an interest-free investment of C$800 000 for a period of five years (to be repaid at the end of the investment period).

HOW IT WORKS

Qualifying business management experience must involve some portion of the management, planning and control of the financial and human or physical/material resources side of the organisation. Quebec immigration authorities will only consider business experience while the applicant had proper work authorisation or legal status. Visa adjudicators consider factors such as age, education and language proficiency.

PROPERTY

Earlier this year, there were record house price growth and sales in Greater Toronto. Now, in the wake of new provincial rules meant to improve home affordability, property investors appear to be bailing. Data from the Canadian Real Estate Association released in July showed that Toronto’s housing market dropped by 33.7% compared with July last year. Sales fell by 37.7%, pushing down overall sales by 6.7% in June, the largest drop Canada’s housing market has seen in seven years. Countrywide, the average house price in Canada in June was up just 0.4% from June last year.

EDUCATION

State schooling is publicly funded and free to all residents. Three Canadian universities – the University of Toronto, the University of British Columbia and McGill University – are ranked in the world’s top 50.

TAXATION

Non-residents are only taxed on their Canadian-sourced income, whereas residents are taxed on their worldwide income. Individuals are deemed tax residents if they spend 183 days or more in the country or if they have significant personal ties (familial, economic or social) to Canada.

FOR MORE INFORMATION

cic.gc.ca

Australian Migration Specialists: australianmigration.co.za

Colin Singer: immigration.ca

Fragomen LLP: fragomen.com

Global Education: globaleducation.co.za

Henley & Partners: henleyglobal.com

Invest Cyprus: investcyprus.org.cy

Keystone Tutors: keystonetutors.com

Klueger & Stein: lataxlawyers.com

Knight Frank: knightfrank.com

Pam Golding International: pamgolding.co.za

Trade Me Property: trademe.co.nz/property

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