The benefits of using mortgage financing to grow your wealth
With interest rates at an all-time low in Mauritius, the opportunity to diversify your asset portfolio with offshore exposure has never been better.
With interest rates at an all-time low in Mauritius, the opportunity to diversify your asset portfolio with offshore exposure has never been better. Currently, the banks in Mauritius are offering mortgage finance at 3,35% over a 15-year period. This means that the interest component of your repayment remains low, and your repayment of pure capital high, thereby allowing you to purchase a higher value asset.
“In Mauritius, we are experiencing an influx of investors looking to secure bricks and mortar in a stable environment instead of further exposure to the stock market. This property investment acts as both a healthy diversification of their assets, but also adds the lifestyle dimension they are looking for as they gradually start to plan for their retirement years. Mauritius, from a lifestyle perspective, ticks many boxes including being close enough to South Africa for an easy commute to see family. And with purchases over USD375 000, the purchaser and their immediate family under 24 years of age also secure Permanent Residency status,” says Richard Haller, Director for Pam Golding Properties Mauritius.
The increase in stock market volatility globally since 2008 has been noticeable, with a number of large corrections seen over the past decade. These have resulted in a significant amount of stress, particularly for individuals of 50 years of age and older, who have built up substantial capital that is now subject to large swings in value.
From a property perspective, it is well known that, under the right conditions, using leverage (loan financing) to purchase appreciating assets is an excellent way to grow your overall wealth. The opposite is true for using loan financing for depreciating assets.
For example, a couple aged around 50 years decides to purchase a property in Mauritius for MUR20 million (US$ 500,000 or ZAR8,3 million) and opts for a mortgage of 40% to get the benefit of asset growth over the long term. This is what it looks like.
|Purchase price||MUR20,000,000 ( US$ 500,000 or ZAR8,3 million)|
|40% loan finance||MUR8,000,000 (US$ 200,000 or ZAR3,33 million)|
|Monthly repayment||MUR56,603 (USD 1,417 or ZAR23,584 p.m.)|
By using this mechanism, you can purchase a substantial asset and use the rental revenue to cover a large proportion of the mortgage repayments and levies during the first few years when you are not utilizing the property. At the end of the 15 year duration, you have a substantial asset offshore, which you can either enjoy in your retirement or sell as part of your retirement plan.
Investing is a long-term play, and with property in Mauritius, we are seeing the attractiveness of offshore investing at low mortgage rates combined with a long-term lifestyle benefit becoming increasing important.
To learn more about the benefits of mortgage financing as an investment in Mauritius, send us a message using the form below and our property experts will contact you shortly.