Ainsworth - Developments Overseas

Pearl Star Investments historically have their roots firmly in the United Kingdom via their sister company, Ainsworth Estates, who for almost 20 years have been renowned for strategic land acquisition in the U.K. and the subsequent development of residential schemes of outstanding quality and value in the most desirable locations.

David Sharp, a partner with David Ainsworth, first began to explore the opportunities in South Africa with the acquisition of land and property in the 1990's. Such was the resounding success and in depth knowledge gained, that the partners established Pearl Star Investments in 2002 to develop and build premium lifestyle and holiday properties for the local and international market. Perhaps there is no better testament to the company's vision and belief in the South African property market than David Sharp's emigration from the U.K. at that time with his family, to run the Pearlstar business.

Since then, Pearl Star has rapidly grown in a controlled manner to become one of the Coastal Garden Route's leading and most dynamic private developers. An exceptionally attractive and diverse range of freehold and sectional title properties are offered in a variety of stunning locations at broad spectrum prices ranging between R500,000 and R20M, providing considerable investment opportunities for the discerning client.

MARKET GROWTH
Recent Standard Bank Of South Africa statistics indicate that for the country as a whole, house prices rose by 121% over the last five years and 22% in the year to February 2006. However, there are notable variations regionally and none more so than the highly desirable Coastal Garden Route where Estate Agents report growth in property prices of no less than 200% to 300% over the same five year period.

Although Standard Bank are predicting a more modest national increase in the region of 10% this year, the considerable demand for premium and life style properties in the Coastal Garden route, often dubbed 'The New California', continues to outstrip supply. Consequently, price rises well into double figures are predicted. Nevertheless, the majority of Garden Route properties still remain particularly affordable by European standards, offering excellent value for money in fabulous locations to rival anywhere in the world.

Considerable investment potential is likely to be maintained from the now higher base and possibly until property values in the Garden Route reach equilibrium with other international markets such as Florida, The Costa Del Sol, The Gold Coast, and the like. This is will almost certainly be boosted by and in the run up to the 2010 Football World Cup, to be hosted by South Africa.

With so many long distance holiday destinations becoming increasingly affected by occasional terrorism and extreme weather disasters, or at least the fear of same, the safe climate of South Africa and its relatively benign position in international politics, makes the Coastal Garden Route ever more appealing and where such factors should fuel market growth even further. Just 200 miles or so to the east of Cape Town sees the beginning of the Garden Route, running from Heidelberg to Storms River.

The rugged Outeniqua and Tsitikama mountain ranges form an impressive backdrop to one of the most beautiful shorelines anywhere in the world, with miles of unspoiled beaches interspaced with beautiful rivers, lakes, lagoons, colourful villages and resort towns. The area is a paradise for the outdoor enthusiast, with almost every sport imaginable.

Such attractions include world class signature golf courses by such eminent designers as Jack Nicklaus, Gary Player, and Ernie Els, to name but three, plus sailing, surfing, water skiing, canoeing, game fishing, scuba diving, paragliding, hiking etc., even bird watching and whale watching.

For those with more extreme inclinations, there are also the likes of forest canopy tours and what is claimed to be the world's highest bungee jump! Nearby game and wildlife parks offer the chance to see some of the world's most incredible animals up close. One can actually stroke a cheetah or perhaps ride an ostrich! U.K. clients will discover the Coastal Garden Route has a wonderful 'Mediterranean maritime' style climate, is predominantly English speaking, peaceful, and offers an excellent quality of life with a high standard of living at relatively modest cost.

Serviced by regional airports in George, Port Elizabeth, as well as Cape Town, the area is easily accessible from the U.K. Flight times to South Africa are similar to many popular Florida destinations and being almost due south, and thus just one or two hours ahead of the U.K., one can say goodbye to jetlag here in the Garden Route. There can be no doubt that this most sought after area offers the opportunity to 'live the dream'.

THE GARDEN ROUTE
IN PICTURES
Golf has become one of the biggest draws for visitors and new residents alike, with over 30 championship courses in the area and more under construction, including residential golf estates. Miles and miles of unspoiled beaches. Not only is property very affordable to U.K. purchasers, but truly spectacular views are also available at some of the most competitive prices in the world. The cost of living is generally much less than in the UK. What nicer way to watch an African sunset, than whilst dining in fine style at a waterfront restaurant and at probably no more than £15 to £20 per head including wine.

The cuisine of the Garden Route is such that it rivals the best anywhere The tourist town of Knysna is famous for its arts and crafts as well as farming oysters of international repute. The demand for holiday rental properties along the Coastal Garden Route is considerable and offers UK property investors the potential of good returns as well as capital growth. Anyone willing to purchase in Florida really must consider the Garden Route, given the exceptional value compared to equivalent locations and views, and quality of life style available in an area generally far less developed.

BUYING PROPERTY IN SOUTH AFRICA
There are no restrictions and overseas investors are free to purchase land and immovable property at their discretion. Provided there is an appropriate paper trail retained to evidence the legitimate source of funds from overseas used for purchases, sales proceeds and gains (the latter being subject to CGT) can be otherwise wholly repatriated. All new properties are covered by a mandatory 5-year NHBRC guarantee, paid by the developer for the purchaser's benefit.

Essentially, there are four main types of property in S.A.:

(1) Freehold properties new and old that have already been built.
(2) Freehold properties sold off plan or still under construction.
(3) Sectional Title properties new and old and already built.
(4) Sectional Title properties sold off plan or under construction.

Sectional Title properties differ from Freehold in that the purchaser effectively buys the inside of their property, say, an apartment and garage in a complex for example, and has a joint share of the common areas. The Body Corporate (formed by the developer to manage the complex) owns and maintains the exterior and roof. A levy is charged by the Body Corporate in proportion to the % floor area (participation quota) of the individual dwelling compared to the entire complex, to cover rates, taxes and maintenance.

This Sectional Title concept is becoming increasingly popular along the Garden Route with holiday apartments and the like, as owners can 'lock up and go' in the comfortable knowledge that the exterior, common areas and gardens will be kept in suitable order in their absence.

Under South African law, the seller appoints the Transfer Attorney, who in turn handles the conveyancing of the property for both seller and purchaser. It is not uncommon for overseas purchasers to have their own attorneys to monitor the transaction on their behalf, but unlike the U.K., such attorneys have no active role in the official transfer process itself. Once a sale is agreed, the purchaser enters a binding contract with the seller.

In common with virtually all S.A. property transactions, Pearl Star requires a 10% deposit payable upon signature of contract to the Transfer Attorney. With Sectional Title properties under construction or purchased off plan, the 90% balance may not be called upon until the building has been completed to the satisfaction of the Land Surveyor. For existing Sectional Title properties, the 90% balance is due shortly before transfer. With Freehold properties purchased off plan or under construction, it is usual for the contract to stipulate 'draw downs' by the developer from the 90% balance at predetermined stages of construction, to be certified as completed by the architect. For existing Freehold property, the 90% balance is due shortly before transfer.

Before lodgement with the (Cape Town) Deeds Office for Registration of Transfer any remaining purchase balance is required in the form of a South African bank guarantee (payable upon transfer) or in funds to the Transfer Attorney. Where funds are placed with the Transfer Attorney, these are protected under the S.A. Law Society's mandatory requirement for Fidelity Insurance, and placed in trust in the clients name with interest accruing via a money markets account on behalf of the client and until transfer.

Brand new properties do not attract S.A. Transfer Duty or other taxes payable in addition by the purchaser. All other transfer costs are payable on a sliding scale by the purchaser to the Transfer Attorney and normally in total less than 1% of purchase price. For example, transfer costs on a property selling at R1.5M (approximately £140,000) would presently be R13,500 (approximately £1275). There are no transfer costs when selling a property on, as once again, the next purchaser pays these. Pearl Star enjoy a very close relationship with Investec Group, probably S.A.'s most prominent investment banker and enquiries are welcome. Mortgages from S.A. banks to 50% value are potentially available to U.K. purchasers, but interest rates are a higher than the U.K. at the moment.

TAXATION MATTERS
The sale of land and immovable property in South Africa by residents and non-residents alike, attracts Capital Gains Tax on any 'gain' calculated by deducting the original purchase price including transfer costs from the selling price achieved. In reality, CGT payable by overseas private individuals is relatively modest, being most usually in the region of 3% to 7% dependant on the size of the total gain.

The calculation for private individuals is currently derived by taking 25% of the gain as taxable income, which is then subject to tax on a sliding scale from 18% to a maximum of 40%.

The resultant figure (added to any other income in the case of qualifying residents) is then reduced by an allowance of R7200 for persons less than 65 years of age and a further R4500 for persons over 65.

In the case of a U.K. seller who is non resident in S.A., and, for example, sells a property at R1.4M originally costing R1M, the taxable element at 25% of the R400,000 gain is obviously R100,000. This R100,000 would be taxed at 18% (R18,000) less R7200 or R11,700 dependant on age, to provide a CGT liability on a R400,000 gain of either R10,800 (2.7%) or R6300 (1.6%).

Present S.A. rates on taxable income in Rands are:

0 - 100,000 @ 18%
100,000 - 160,000 @ 25%
160,000 - 200,000 @ 30%
220,000 - 300,000 @ 35%
300,000 - 400,000 @ 38%
400,000 - @ 40%

It should be noted that in the case of S.A. land and immovable properties purchased by off shore and resident companies, then 50% of the gain is regarded as taxable income at a flat rate of 29%. In the case of trusts, 50% of the gain is taxable income at a flat rate of 40%. Rental income achieved by UK property owners who are non-resident in S.A. is not taxable in S.A.

COLLABORATION
Pearl Star expressly invites you to join in the incredible Garden Route success story and share in the highly profitable marketing of their properties and developments to your U.K. clients. Opportunities to broaden the market area via the sourcing of specific property concepts across the region, also exist. It is envisaged that Pearl Star would provide and regularly update you with comprehensive details, plans and publicity material for all properties considered especially suitable for U.K. buyers.

All that is asked is that you effectively promote, advertise and actively market such Pearl Star properties and developments to your client base, responding promptly to enquiries and referring suitably vetted potential purchasers to us. For this Pearl Star guarantee you 3% commission based on the selling price achieved on those properties sold to U.K. purchasers specifically introduced to Pearl Star by you. Your commission, in South African Rands, to be sent by T/T to your bank account within 14 days of the registration of transfer at the Cape Town Deeds Office.

With current stocks and those developments secured for the immediate future, Pearl Star can assure you of a more than adequate continuity of supply. Pear Star will also conduct incentivised inspection tours to the extent that we will refund the U.K. coach class return air fair, or equivalent, to all U.K. purchasers of our properties, upon registration of transfer. Mindful of this desirable destination, Pearl Star can incorporate this incentive upon purchase for one person within a broader family holiday, perhaps commencing in Cape Town, and we can even assist with preferential rates at the finest hotels.

Pearl Star offers a one-stop service with the provision of legal and tax, question and answer seminars during inspection visits, as well as assistance with letting agents, property management services, municipal services, immigration practitioners for extended visas and residency, interior design and furniture consultants, discounted furniture packages, even the opening of bank accounts.