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EXCHANGE CONTROL: Easing Of Exchange Controls Praised

 





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Presenting his medium-term budget policy statement in parliament, Pravin Gordhan said exchange controls on individuals, companies and pension funds would be eased dramatically.

By using their foreign investment allowance South Africans will now be able to move R4m out of the country each year as opposed to a single R4m lifetime limit previously. Permission may also be applied for to exceed the R4m Annual Allowance.

Other concessions include the increase of both the individuals annual travel allowance and the annual discretionary allowance, from R750, 000 to R1m. The 10% exit levy on blocked assets will also be scrapped for those who have formally emigrated.

“Our clients have reacted very positively to these announcements” says Mike Smuts, managing director of Smuts and Taylor, the South African investment firm based in London.

“Within hours of the Finance Minister’s speech we were inundated with calls and emails from clients who have previously used their foreign investment allowance and now see this as a golden opportunity for a second bite at the cherry. Many of these High Net Worth individuals also moved funds out of SA at a much higher exchange rate and want to make use of the over-valued ZAR at present to average their FOREX cost downwards.”

The rand has gained nearly 30% against the dollar since the start of last year, driven in large part by capital flowing into South Africa because local interest rates are more attractive to investors. Both international and domestic economists agree that the currency is now overvalued with the real effective rand exchange rate about 12% above its average for the past decade.

Surprisingly however, Smuts says that wealthy South Africans do not seem to base their decision to invest offshore on fear of the ZAR’s fall in value but rather by solid financial planning that includes diversification of asset classes and markets.

As a result South African buyers also take a very different view on the London market as a whole in that they do not see their property as a short-term investment. In fact, some don’t view it as an investment at all, but rather as a long-term asset that will stay in the family for generations to come.

This is mainly due to the long-standing view that London property offers a safe haven, the enduring attractions of the city’s excellent schools and the strong economic and social factors that makes it the investment destination of choice for the worlds wealthy.
Smuts admits that not many South Africans have the financial capability to move R4m per year offshore but points out that the high net worth market in SA is estimated at around 15 000 individuals (net investable assets of more than R15m) and keeps growing. There are also a large number of investors who have sold property and other assets before the slowdown and have been sitting with considerable sums in their war chest waiting for the right opportunity.

“London has recovered much better from the economic downturn than other prime markets around the world and has therefore retained its crown as the investment location of choice for the wealthy of the world” concludes Mike

“A fact which has not escaped the offshore property investors of South Africa who will see the latest easing of exchange controls coupled with the strong ZAR and lower London property prices as a buying opportunity too good to miss.”

 
 
 
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