Many people are currently asking what is the value in our current market and is foreign investment favorable?

The effect of the Covid pandemic on our current market and foreign investment

There is no disputing that for the past 18 months or so, life has been significantly different from former years.

There has been a negative impact on so much due to the measures taken to protect the citizens of the world. Businesses closed during lockdowns and could not make it to see the end of the pandemic.

While many have lost their lives, many more lost their livelihoods. The travel and tourism sectors took a heavy knock with travel bans being implemented, and even with the reopening of the borders, visitors are only slowly beginning their travels again.

This ultimately battered the economies of the world and while it’s beginning to recover, there is still some more time needed to get it near to where it was pre-Covid.

The economy in South Africa, in particular, has taken quite a blow, and the property market has seen a major shift since early 2020. Although it’s not ideal for sellers, it is a total buyers market at the moment and we don’t intend to see much change until we begin entering the second quarter of 2022. 

Exchange rates are very favorable

There hasn’t been a more perfect time to make that foreign investment in South Africa’s current market.

What could have bought you an entry-level suburbian house in the more inland areas of sunny South Africa, can now get you an upmarket seaside home in which to enjoy the very best of South African Shores.

The lending interest rates are highly favourable and the present time has been referred to as the best time to invest in the South African property market.

Ways to make your foreign investment in South Africa

There are various ways to make your foreign investment in South Africa, depending on your investment strategy and how quickly you want to see a return on your investment.

Live-in Property Investment

You could invest in a property to add to your property portfolio and live on the property during visits to South Africa. This would require that you have a dedicated property manager, who will ensure that your property is well maintained and remains unoccupied. 

Rental Property Investment

Another option is to make a foreign property investment purely as a long-term financial investment. Without the intention to ever live on or visit the property, you can have a property manager who would ensure that the property is well and properly maintained, that a suitable tenant is found to occupy the property and that every invoice relevant to the property is paid timeously each month.

Property ‘Flipping’

You could also invest in a property that you would benefit from “flipping”. In other words, invest in a property that has some fixing up to do, spend some additional money in upgrading the property and increasing its value, and when the market is ready to make you a good return on your investment, begin the process of putting your property on the market. 

Why Choose Foreign Property Investment in South Africa?

Favourable Exchange Rate

Apart from the current market prices being as low as they are, the exchange is also very favourable for foreign investment.

Appreciation of Property value

The appreciation of property value, especially in major metro areas is a great motivation for investment in South Africa. Buying a property to quickly resell it, may yield a quick and profitable return since the exchange rate allows for a cost-effective upgrade to a fix-me-upper property. With this strategy considered, the return on your investment is well worth it. 

How Domisa Treasury Can Help with your property Investment in South Africa

With these in mind, it is in your best interest to partner with a business that well understands these variables and who can be your eyes, ears, and hands in the country you have made your foreign investment in. The property market needs to be closely monitored and at Domisa, we have built relationships with all the right people in all the right places. 

Your property remittance of payments to both local service providers and for municipal services will be carefully managed by our team, converting your foreign currency at an optimal time, ensuring that you are always getting the very best deal in the purchase of foreign currency.

Although we do not handle the transfer of properties, we can carefully and efficiently handle all aspects of your currency conversion, local fund transfers, and overall management of your banking accounts in South Africa ensuring that all local invoices are paid on time and at the best possible conversion rates. 

Services to Foreigners include:

• Opening non-resident ZAR bank accounts & foreign currency accounts. There is no cost to open these accounts
• Processing payments of local invoices in respect of property management e.g., Gardening services, municipal bills
• Cash management services
• Assistance with dynamic forex hedging
• Forward Exchange contracts (FEC) and options to hedge currency exposure

Not only do we take care of all the paperwork (FICA, BOP forms, dealing with local banks etc), we also offer the best foreign exchange rates & exceptional client service.

Our rates are unbeatable and our service is unmatched.

We understand that making a foreign investment in a country far away can be quite daunting, and uncertainty may creep in and that is why we are here. 

Let us show you that the South African market is well worth investing in and that it can be a simple, and efficient process without delay or concern. 

Contact us today to find out more about the services we offer, and get started on growing your property portfolio by making your first foreign investment in South Africa.

The post Foreign investment and South Africa’s current market value appeared first on Domisa Treasury.

Foreign property investment in South Africa | 

South Africa is a great country in which to invest in property, particularly from now until toward the end of March 2022. With the economy steadily recovering from the Covid-19 pandemic, tourism is picking back up and investors are exploring the option of owning property in sunny South Africa, and for good reason.

The exchange rate is highly favourable for foreign investors and international money transfers to South Africa through Domisa has never been easier. You can expect the best foreign exchange rates along with exceptional customer service.

Here are some points to consider when planning property investment in South Africa, as a non-resident.  

Foreign Property investment in South Africa

Non-residents may invest in South African property.

If there was ever a doubt in your mind on whether you, as a foreigner, can purchase property in South Africa it should be clear by this point in the article.

Not only is it possible, but also a great idea and an incredible financial investment. The South African Rand (ZAR) is considerably weak and it makes it not only easier, but also worthwhile. Luxury property can be purchased with a middle-class budget and maintenance, levies, services, and general upkeep will not break the bank.

At Domisa, we manage the entire process of international money transfers ensuring not only the best foreign exchange rates but also that every aspect complies with the South African Exchange Control Regulations.

It is imperative to have a reliable partner who is in the local area of the property you wish to purchase and that they are reputable and trustworthy.

Domisa will also handle the opening of both local and foreign exchange bank accounts, management, and payment of all local invoices received for such as municipal services, estate levies, maintenance, and all other general services concerning the property.

Although we do not handle the ownership transfer, we make every other aspect of the process stress-free and simple, offering peace of mind that this is, indeed, a great investment.

Local financing is available (mortgage bond) is permitted up to 50% of the price of the property for foreign property investment in South Africa.

Having the details and steering towards taking the plunge into foreign property investment in South Africa, you may begin wondering how you would be able to purchase the property if you are not able to make an international money transfer for the full amount asked for the property.

We have great news. The South African Reserve Bank allows Mortgage Bonds to foreign investors. These mortgages are known as “Bonds” in South Africa and there are different criteria to meet as a foreign investor than if you were a local.

A large deposit is generally required (which would be your International Money Transfer in foreign Currency), but the balance you can mortgage locally. Factors including affordability and the price of the property you wish to invest in are taken into account and determine whether your application will be approved.

It is possible to do this directly through local South African Banking Institutions, Domisa, will be able to guide and advise you on the best ways to approach your mortgage application. We specialise in property investment in South Africa. 

Non-residents may take their funds back offshore via international money transfers following the sale of a property.

When you feel it is time to sell the property you have purchased in South Africa, it is possible to repatriate the funds back home. There are a few conditions, but they are very reasonable and quite simple to meet.

If you have settled your Mortgage Bond in full, the total amount (subject to local Tax) can be repatriated offshore but before the funds are approved for final repatriation, the sale price will be reviewed by the bank, to ensure that the profit on the sale price is not only reasonable but market-related.

If, however, you have not settled the Mortgage bond in full, you will only be entitled to the balance after settling the outstanding amount on your bond.

Another aspect to ensure is properly managed is the safekeeping of all documents relating to the original purchase of the property. Upon application for repatriation of funds offshore, you will need to present all receipts of the deal, the conveyancer’s final statement of all costs, as well as a copy of the agreement of sale to the South African Reserve bank.

The Tax Payable on this amount is referred to as Capital Gains Tax and there is no way to avoid this.

Some aspects can affect the general flow and ease of this process.

At Domisa, we understand, not only just how unnerving it can be to make huge international money transfers, but also how much more the final cost can end up being if you attempt this without the services of an experienced and reliable Foreign Exchange Partner in South Africa. 

Please contact us for a free consultation to discuss your business needs, internation money tranfers and what Domisa Treasury could do to assist you in managing your foreign currency risk in the most efficient and cost-effective manner. Click here to contact us today. 

Want to find out more about Foreign exchange South Africa? Read this article.

The post Foreign property investment in South Africa appeared first on Domisa Treasury.

Investing in the property market in South Africa is common amongst foreign individuals.

Setting up non-resident bank accounts, and the management of foreign exchange and transfer may not always be the most pleasant experience, especially from abroad. The process becomes complicated if there are any communication challenges such as language barriers or uncertainty of local terminology. 

The expert guidance and advice you will receive through Domisa Treasury is incomparable to any other in South Africa. We pride ourselves on unmatched, efficient, and reliable service to foreigners investing on South African shores.

Setting up bank accounts as a non-resident in South Africa

The South African banking system is overseen by the South African Reserve Bank. Setting up bank accounts in South Africa is a free service to foreign investors.

Non-resident investors typically open 2 accounts – one in their home currency and the other in rand (ZAR). These accounts can be used when international currency is converted into South African Rands (ZAR) for payment to conveyancing lawyers in accordance with the Offer to Purchase, at the client’s request.

One of the perks is the fact that you keep these accounts open and active and use them as and when required for the exchange of foreign currency. Clients may hold foreign currency on their foreign currency account and immediately convert to ZAR as required or when rates are more favorable.

Although it’s not the most complicated of tasks, it can be an expensive one if the bank you select is not a match to your budget in terms of banking fees.

For example, if a person or company is handling transfers or any withdrawals on your behalf, the fees for doing so may not be as beneficial to you as it would be to someone who can have all the transactions made via debit order. Those who move their money around more regularly, tend to attract greater bank service charges.

Documents Required for a non-resident bank account

For the application of a non-resident bank account, you should have the following documents on hand and ready to include with your application before submitting:

• a valid passport
• proof of address at your current place of residence
• a document showing your tax number from the tax authority in your country of residence
• details of your investment into South Africa

Domisa will source and present the best option relative to your current budget to ensure that your money is not spent on unnecessary local bank service fees. 

Movement of funds according to clients requests

We handle a large portfolio of clients’ transfers, payments, and foreign exchange. 

When our clients request that payments are made locally, we ensure that the best possible foreign exchange rate is applied and that the funds are transferred into their non-resident ZAR bank account for a local transfer, debit order, or withdrawal.

These transfers are not limited in value. They can be small enough to cover a quick garden service, or big enough to cover the purchase of a larger asset, such as a property in South Africa.

Your funds can be kept in your account as foreign currency until it is required that they be exchanged for local currency. The finer details of the movement of funds are monitored by Domisa, ensuring that our clients ALWAYS get the very best deal when it comes to foreign exchange and transfer of funds into the international bank account in South Africa. 

We handle all payments to local service providers in South Africa

If you have invested in a property in South Africa, your expenses are consistent in terms of municipal accounts, levies (if applicable), and general upkeep of the property.

When these invoices are received and payments need to be made, Domisa will ensure that each invoice is paid from your non-resident bank account. Through the precise management of your international bank account, your foreign currency will be converted at an optimal time, ensuring that you are offered the very best conversion rate and that your accounts are paid timeously and entirely, at the lowest cost to you, without fail every month.

Understanding what these bills are, or what they cover in terms of property maintenance or services may also not be clear while attempting to handle your foreign account in your private capacity. This is why the guidance of a local service provider like Domisa is beneficial for the handling of funds in your international bank account. Often, the desire to try and exclude a third party, or middle-man, to save costs ends up costing more than anticipated. 

How Domisa Treasury can help

Ensure that you have all your bases covered and that you are well guided and advised in all things regarding your international bank account through Domisa Treasury. We have both expertise in the field of international money transfers and handling, and also a track record of exceptional service with very happy clients. 

Contact us today. We would love to assist you with the seamless setup and management of your international bank account in South Africa. 

Frequently Asked Questions

As an established Treasury in South Africa, we’ve helped countless individuals and businesses with their non-resident bank accounts. Through this process, there are a few key questions that are repeatedly asked. In this article, we’ll answer them in a simple, straightforward way.

What is an international bank account?

A International Bank Account is an account you can open in a selection of currencies, in a variety of locations. An international bank account enables someone who lives or works abroad to access and use their money from other countries. 

Is it legal to have an international bank account?

Yes. There is nothing illegal about establishing an offshore account. To open an international bank account, you will be required to submit certain documentation in line with your country’s financial legislation. 

How do I open an international account?

To open an international or non-resident account, contact Domisa Treasury. We have helped many businesses and individuals in setting up and managing their international or non-resident bank accounts. Our expert team will be happy to guide you through every step of this surprisingly simple process. 

Why would you open an international bank account?

1. Having an international bank account allows you to transact in multiple currencies, which means you can more easily mitigate and manage the risks associated with forex fluctuations.
2. International accounts can make it easier to manage your money across different currencies, and cut down on banking costs.

What is non resident bank account?

A non-resident bank account is an account owned by someone who is not a resident of the country in which the bank account is held. For example, you can open a non-resident bank account as a British citizen in South Africa if you are looking to purchase property here, and would like to make the most of your foreign transactions. 

The post Set up a Non-resident bank account in SA appeared first on Domisa Treasury.

Domisa Treasury discusses Forex Hedging in South Africa in 2021. 

The South African Rand (ZAR) is one of the world’s most volatile currencies. South Africa is considered an emerging market and demonstrates many of the attributes typical of one – high interest and inflation rates, high (but decreasing) degree of reliance on agriculture and raw material sectors, strong potential for growth, capital controls and relatively low per-capita incomes.

South Africa also has well-regulated and liquid markets, strong financial institutions and a strong and independent judicial system.

Being English-speaking adds additional appeal to the ease of doing business in South Africa to the global English-speaking community.

Forex Hedging: Currency challenges faced by businesses in South Africa

The result being that ZAR is heavily traded and highly volatile. As an Emerging Market currency, ZAR shows many of the typical attributes:

• Wide BID / ASK spreads – the difference between where you can buy and sell ZAR at any given point in time is large, resulting in it being very expensive to exchange from ZAR to a foreign currency and vice versa
• High Commissions and Fees – international money transfers are expensive due to a limited number of banks and liquidity providers participating in the market (high regulation effect). Limited competition results in higher prices in any market
• Regulatory and Compliance requirements – high levels of regulation result in extended processing times, significant documentary requirements and frequent delays
• Lack of Transparency – disclosures are frequently insufficient for clients to ascertain how much is actually being charged by their financial services providers in commissions and fees

Available tools to manage currency risk

All the above add complexity and frustration to doing business in South Africa, this is particularly acute for the SMME (Small, Medium and Micro Enterprise) business community. These are the tools that can be employed when hedging forex risk:

• Understand actual currency risk – too frequently businesses do not fully understand their actual currency exposure. Netting expected inflows and outflows of a particular currency and then hedging the net exposure is far more efficient that hedging each transaction. Getting these systems and processes right and operationalized has the greatest impact on any businesses currency risk management and hedging cost
• Foreign Currency – receive, hold and manage the required foreign currency in a foreign currency account to meet future obligations. Simple solution but can be inefficient from a cash-flow perspective. Only effective for future international payment obligations
• FX Forward – a Forward Exchange Contract (FEC) is a foreign exchange transaction where the value date of the transaction is greater than 2 business days into the future. The rate is agreed today for a date in the future, ensuring the client has certainty in relation to the future exposure in domestic currency.
• Currency Options – an option gives the buyer of the option the right, but not the obligation, to buy or sell one currency against another at an agreed price until an agreed date in the future. Option strategies are wide in variety from very simple single option strategies to highly complex strategies involving multiple options.
• Currency Swaps – is an agreement between 2 parties where they exchange the principle amount of a loan plus the interest in one currency for the principle plus interest in another currency. Typically used by larger companies to hedge foreign currency denominated loans.

How can Domisa Treasury assist

Domisa Treasury is able to assist SMME businesses in South Africa in hedging forex and managing their currency risk by facilitating the implementation the correct combination of the above tools to achieve the optimal solution for their unique business needs. We leverage our strong market relationships to make these solutions a reality for our clients. What we offer:

• Bank accounts – we facilitate the setup of foreign exchange transactional accounts with preferred providers
  • Rand (ZAR) accounts – High interest, no monthly fees, fully transactional internet banking
  • Foreign Currency Accounts – accounts available in all major currencies. No monthly fees, internet banking
    • International Payment Solutions – send, receive and hold foreign currency
    • International money transfer – pay foreign currency invoices directly from your currency account
    • Non-ZAR currency pairs – buy GBP with your USD for example

• Commission, Fees and Transparency – Domisa Treasury supports greater regulation of foreign exchange market participants, authorized dealers and intermediaries alike. Transparency to clients is paramount and we provide full disclosure of deal economics to every client on every transaction
  • Commissions – Domisa operates on published, highly competitive commission tiers:
    • applicable to all our clients consistently
    • Our systems and processes do not allow deviation from these
    • We do not engage in ‘bait and switch’ pricing where transactions become more expensive for clients after the first few transactions – a pervasive problem in the industry
    • Clients always get our published tiers
    • Our live, online calculator is a highly accurate indication of where our clients are currently dealing
      • available to everybody and requires no information to be provided in order to get an indication – its an opportunity to show off our fantastic pricing, not a data trawling exercise!
      • Use it to compare us to your current provider in real time
  • Fees – There are no fees on transactions of R50,000.00 or greater and a flat fee of R250.00 below R50,000.00

• Products – Domisa is able to facilitate the full range of foreign exchange products
  • Same-day, Next-day and ‘Spot’ Foreign Exchange
  • Forwards – Forward Exchange Contracts (FEC)
  • Derivatives – Options and Futures

Contact Domisa Treasury

Please do not hesitate to contact Domisa on +27 21 205 1980 or via the form below , should you have any queries or transactions.

The post Forex Hedging in 2021 appeared first on Domisa Treasury.

Click here to view our updated FAIS disclosures, and click here to view our fee schedule – there are no changes to the fee structure. We remain the only provider to publish live, accurate, real-time client prices to the general public at www.domisa.co.za – markups are calculated from the global interbank rate.

Market Update

ZAR has recovered to levels stronger than just prior to the national Covid-related lockdown (12Mar20) and a substantial recovery off the lows of Ramaphosa’s 23Apr20 speech. The JSE Top 40 index has gained 55% and the 10yr bond 27% over the same timeframe. Let’s assume ZAR and SA Assets are fairly priced at current levels.

What to expect from here?

We feel there’s a strong chance of more to come actually.

On the global front, commodities are on fire across the board (GSCI up 76% year-to-date), playing to South Africa’s strengths. In fact, mining brought R100bn in additional (and unexpected) tax revenues per the 2021 budget allowing for a slight reduction in personal tax rates.

Global markets are fearful of interest rate rises in the US with Treasury Bonds selling off sharply (increasing yields) and equity markets reacting negatively with a small sell-off and signs of rotation out of tech into financials and value. We cannot see an alternative to the Fed implementing Yield Curve Control (Quantitative Easing’s ugly cousin) where they print USD to create demand for (buy) US Treasuries, thereby lowering yields to a target range. Very USD negative. Make no mistake though a sell-off in global markets will be ZAR negative.

We, however, feel the Fed has no option but to keep blowing this bubble and let inflation run for now. Equities are the best inflation hedge and as long as positioning is “risk-on” and equity markets keep running ZAR will continue its current path stronger.

Domestically, well no change really – Eskom load-shedding, progress slowly being made in bringing corrupt politicians and business-people to book, additional corruption being discovered. Fears of a “3^rd wave” of Covid as SA heads into Autumn and Winter. Slow progress on the vaccine but interestingly Discovery estimating that up to 50% of the population may already have had Covid.

Remember, the Emerging Market pendulum swings steeper in both directions versus Developed Markets. Too many conversations we’ve been having with clients are centred on their view that ZAR is overvalued here and cannot get stronger.

That ZAR and SA assets continue their run of strength from here is a strong possibility, that is our message. Sub-13 to USD and sub-15 to EUR quite possible. We love GBP and the UK right here, but that’s another story!

May you live in interesting times they said………the only thing we can guarantee you is continued volatility I’m afraid. A significant resurgence globally in Covid remains the greatest threat to global markets, Emerging Markets would be most aggressively sold once again should that happen.

Monitor and manage your cross-currency positions, make full use of your foreign currency accounts (FCA / CFC) and remember we’re only a call or email away.

Contact Domisa Treasury

Please do not hesitate to contact Domisa on +27 21 205 1980 or via the form below , should you have any queries or transactions.

The post Market Update | 12 March 2021 appeared first on Domisa Treasury.

Levels at the time of writing: USD 15.48; EUR 18.32; GBP 20.40

ZAR is stronger by 18%, 11% and 13% versus mid-April against USD, EUR & GBP respectively – a performance that puts it near the top of the list of best performing emerging market currencies globally over a 6 month time-frame. The SA stock and bond markets have put in equally strong performances on the back of significant inflows.

Global optimism related to virus vaccine test results along with the US election (almost) result spurred markets into a more ‘risk-on’ stance moving away from the safe-havens of USD, CHF and JPY.  No real surprise that South African assets got bid up along with most emerging market and commodity-based peers, given the significant levels of undervaluation that were in place.

Bipartisan divisions in the US congress make a substantial support package far less likely in the near future, with ‘near-zero’ interest rates almost guaranteed for the foreseeable future – very USD negative. Watch for news around any type of stimulus and COVID-19 containment measures from the new (almost) administration. De-escalation of the global tariff wars Trump has been waging should be positive for emerging markets.

Domestically, South Africa moved to Alert Level 1. The virus is showing a strong inverse correlation to temperature and, with the arrival of Summer, perhaps SA gets a window of opportunity to keep it contained until any vaccine/s become available mid to late 2021.

Travel restriction ‘Red List’ has been removed and inbound travelers from any country are allowed into SA ‘subject to certain protocols and the presentation of a negative COVID-19 certificate’. Perhaps a little too late to save the international inbound holiday season but progress nonetheless.

With the onset of Winter in the US and Europe and a ‘second wave’ of the virus escalating expect downbeat Q4 and Q1 numbers from there before a vaccine / weather induced recovery in Q2. Perhaps a long trip to SA is the best idea……..and buy a flat or house – they’re cheap by any standards!

Good vs Evil epic battle playing out daily in front of our eyes. Difficult to keep track of the number of corruption cases / Hawks investigations / denials / supercars & mansions confiscated – but it’s fair to say that thus far good seems to be prevailing. The wheel of justice is turning slowly but its certainly turning – VBS / Estina / Eskom / Transnet / SAA – all under the spotlight along with some very powerful alleged perpetrators. Hopefully orange overalls at some point!

As always, stay well-balanced and manage exposures / cross-currency cashflows closely. Although the extreme nature of ZAR’s undervaluation is resolved we continue to see room for gains as sentiment improves and global appetite for risk strengthens.

Please do not hesitate to contact Domisa on +27 21 205 1980 or via the form below , should you have any queries or transactions.

The post Market Update | 15 November 2020 appeared first on Domisa Treasury.

Levels at the time of writing: USD 17.61; EUR 20.80; GBP 23.05

Government is corrupt and occupied largely by inept, self-serving individuals with no goal or objective other than self-enrichment (via family members who all happen to be accomplished business people). Municipalities and SOEs are drowning in debt, overstaffed and under-skilled. The education system is held hostage by unions who merrily trample over the rights of children in the chase for power and influence. Add to this the irrationality of aspects of the lockdown which are causing unnecessary economic damage, particularly when viewed alongside the nonsensical accommodations afforded vote-wielding sectors of the business and union community.

What’s new though?

That’s the point – these are all known knowns. There’s not a piece of new news or information suddenly adding to the heavy load we are already carrying in SA. SA’s asset is its resilient and highly entrepreneurial private sector. It has survived many decades of misguided government in many guises and will do so again. No doubt there is currently a degree of hibernation with Covid-19 and its implications, which SARS are flagging in significant revenue shortfalls (known known).

The condemnation of recent Covid-related corruption allegations has been swift and ear-shattering and, most importantly, from all sections of society. The threat from the voting booth is the only consequence which will drive action. Let’s see.

In short, we don’t even need good news we just need news that’s not quite as bad. August continues its form as a bad month for emerging market currencies.

Overall we struggle to envisage news-flow that darkens the clouds over SA & ZAR any further. As one of SA’s biggest exports gold above $2,000 should provide a solid backstop to ZAR.

• USD weakness: US economic outperformance of recent years has driven significant USD strength. US mismanagement of the Covid pandemic and the forthcoming election uncertainty are leading to questions about sustainability, favouring other currencies recently. Between March and today GBPUSD has rallied from 1.15 to 1.31 (14%), EURUSD from 1.08 to 1.19 (10%). USDZAR at 17.61 is actually flattering
• EM weakness: TRY, ZAR & BRL have been significant underperformers in global currency markets. Global risk aversion is strong with US-China tensions exacerbating the impact on emerging market currencies generally
• SA Govt bonds: Currently yielding 9.3%, with inflation around 4% and the repo rate at 3.5% (lowest since 1998 after SARB has lowered by 300bps this year). Prime lending rate is 7%. Your Mercantile ZAR accounts currently pay 4% pa on cash balances with immediate availability
• Residential property: In line with estate agency news flow we have seen a small increase in foreign buyer activity in residential real estate with ZAR weakness and a “buyers market” making for attractive assets. As a treasury service we manage local payment of bills and invoices on behalf of our foreign owner clients, depriving them of the joys of dealing with Telkom and the municipalities.

Tough to make a call in this market. Keep portfolios well-balanced, exposures managed and a strong handle on cross-currency cashflows. Don’t under-estimate the risk and things may get better from here.

Please do not hesitate to contact Domisa on +27 21 205 1980 or via the form below , should you have any queries or transactions.

The post Market Update | 07 August 2020 appeared first on Domisa Treasury.

We’re all consumers and love a bargain (or a fair price at least)! But when it comes to foreign exchange rates, can you say for certain that you know what you’re being charged?

Are you paying too much to purchase foreign currency, or receiving too little for your sale of foreign currency? The fast flashing lights of various currencies being bought and sold may seem exciting, but are of little use unless you know how to interpret the information.

Currency Markets

Most countries have ‘floating’ currencies where supply and demand determine the price, we will deal with the mechanics of pricing for these currencies only.

What is the ‘Interbank Rate’?

Unlike stocks and shares, currencies are not bought and sold on an exchange but rather directly between large global banking institutions and central banks in the ‘Interbank Market’ via electronic interbank forex platforms. 10 To 15 institutions account for the majority of the Interbank Market’s approximate global volume of $5 trillion per day!

In short, the current ‘Interbank Rate’ for any currency pair is the average rate at which these institutions are currently transacting with each other, 24hrs a day, 5 days a week.

The ‘Mark-Up’

Interbank Rates are the rates displayed on the internet by Yahoo! Finance, Google Finance and everyone else. Transactions at those rates are simply not accessible to individuals and businesses.

No participant has control over these prices, what we (and other intermediaries) do have control over, is what is referred to as the “Mark-Up”. It is critical for you to understand how far away from the interbank rate your rate was at the exact time of execution.

The difference between your price and the interbank rate represents the total Mark-Up.

Breaking down the Mark-Up

Institutions (other than Central Banks) participating in the Interbank Market are, of course, in the business to make profit. They provide currency to their clients (who are also large corporates), typically one of whom is your bank, and they do so at a profit to themselves – they buy cheap and sell slightly more expensive.

In turn, your bank or intermediary provider will provide currency to you or your business at a price that includes a profit to themselves. Often they will also add on ‘transaction fees’, which whilst not being directly included in the Client Rate clearly makes the transaction more expensive to you, the client.

Its fair of course for participants in any given transaction to make a reasonable profit. The issue with the currency transfer or foreign exchange markets is the degree to which many participants deliberately keep the mechanics and pricing opaque in order to make unreasonable profits.

In short, the only way for the end client to deal with facts is to regard the total difference between the live Interbank Rate and the Client Rate as the total Mark-Up. If this is not fully disclosed to you by your provider then move your business to one that does immediately.

Navigating the toxic maze

Hint: Ignore the noise, request the total mark-up from interbank from providers, that is the only real comparison. Don’t forget to include the impact of additional fees and charges

No Fees or Commissions – the myth

If this is what is being offered then your provider’s profit margin is buried in the foreign exchange rate being offered to you. It’s all about the definition they use.

Using your regular bank for Currency Transfers & Foreign Exchange 

Retail banks have a ‘captive’ client base of domestic currency account holders. For clients doing small, infrequent foreign currency transactions this may well be the best and most convenient option.

However, for clients doing frequent or single large transactions far superior foreign exchange pricing is available elsewhere. Take particular note of fees when dealing with your regular bank.

Bait & Switch pricing

You sign up with a new provider and your initial transactions are competitive in terms of pricing. Gradually, however, as time goes by your pricing gets less and less competitive.

Your provider’s website shows either the Interbank Rate or a ‘teaser’ rate which is not what you actually get with them. At least misleading, possibly dishonest. Neither good.

Banks and intermediaries incentivize their ‘dealers’ to maximize profits. Ensure you have a pre-agreed tiered pricing structure to mitigate this.

Domisa Treasury – how we operate

Domisa Treasury brings competitive, straightforward pricing to the foreign exchange and international money transfer industry in South Africa. No hidden fees or complicated pricing structures. Our pricing is tier based on the rand size of the transaction.

What you see is what you get. Our live online calculator shows:

• Interbank Rate
• Client Rate – the rate you get
• Proceeds – the exact amount that you will get
• Fees – Fees are waived (Domisa pays them) for all transaction over R50,000, we charge R250 fee for smaller transactions

The Mark-Up (difference between client rate and Interbank Rate) includes our provider’s profit, our own profit as well as transaction costs.

Our model – how and why do we do it?

We have negotiated wholesale pricing with our providers, based on the total volume of all our clients.

Depending on the Rand (ZAR) size of the transaction we apply the relevant tiered % markup from the Interbank Rate and that is our client’s price – its mathematical, clean, consistent and transparent. Most importantly FULLY DISCLOSED to every client on every transaction.

Domisa’s success is based on providing unrivalled pricing, products and service to our clients over the long term. If you are receiving anything less please contact us here.

Related articles:

Business Essentials – The Foreign Currency Account

Hedging Foreign Exchange Rate Risk in South Africa

The post Explained: Your Foreign Exchange Rate appeared first on Domisa Treasury.

How Does Foreign Exchange Work?

In layman’s terms, when you are transferring money from South Africa abroad, you are essentially “selling” your domestic currency (South African Rand) and “purchasing” a foreign currency. The Foreign Exchange Transaction can also go in the opposite direction, where you “sell” your foreign currency (be that the British Pound, US Dollars, Euros etc.) and “buy” local currency (the South African Rand).

What Is A Discretionary Allowance?

More on forex in South Africa specifically. Every South African resident over the age of 18 has what is referred to as, “an annual discretionary” allowance of R1’000’000.00. A South African resident may transfer a maximum amount of one million Rand, without having to obtain a tax clearance certificate from SARS (South African Revenue Services).

Foreign Investable Allowance

South African residents wishing to transfer money internationally in excess of one million Rand (in excess of their discretionary allowance) can also make use of their “foreign investable allowance.” The foreign investable allowance amounts to R10’000’000.00 per annum. Application and receipt of
a tax clearance certificate will be needed from SARS, should an individual wish to make use of their foreign investable allowance. SARS tax clearance is not needed for South African residents wishing to make use of their annual discretionary allowance.

The above mentioned discretionary and foreign investment allowances relate to South African resident individuals only. SARS and the South African Reserve Bank (SARB) have different requirements for South African Businesses who wish to make use of international payment solutions or non-resident individuals (non-South African citizens, who are residing in South Africa for work or leisure).

Domisa’s Currency Conversion Process

The exact process of converting your South African Rands to a foreign currency through Domisa, is then as follows:

• Open an account with us (free of charge). Our South African Rand accounts are held with Mercantile Bank and earn a very lucrative interest on your cash deposits.
• Once your Rand account is opened, you will have to deposit funds into it and specify the amount of Rands that you would like to sell or the amount of foreign currency that you would like to purchase.
• Domisa then does the currency conversion for you and instructs the transfer to your offshore account. Domisa can assist you in opening an offshore bank account, should you not have one. Your converted currency will reflect in your foreign bank account within two business days.

Please contact us for a free consultation to discuss your business needs and what Domisa Treasury could do to assist you in managing your foreign currency risk in the most efficient and cost-effective manner.

Foreign exchange South Africa

Forex South Africa | Forex Payments | Forex Exchange

The post An Overview of Foreign Exchange in South Africa appeared first on Domisa Treasury.

In South Africa, as everywhere, going into business from scratch as a startup or running an established business can be a daunting exercise with a host of challenges manifesting themselves alongside the considerable opportunities for success.

If you trade with foreign partners or clients, as an importer / exporter, tour operator / travel company, service provider, consulting or technology business you will have both revenues and expenses in foreign currency. In this article, we’ll explain what a foreign currency account is, and why it is a good idea to have a foreign currency account in South Africa.

Frequently Asked Questions : Foreign Currency Account

As an established Treasury in South Africa, we’ve helped countless businesses with their foreign currency accounts. Through this process, there are a few key questions that are repeatedly asked. In this article, we’ll answer them in a simple, straightforward way.

What is a Foreign Currency Bank Account?

A foreign currency account is simply a bank account for the business denominated in a foreign currency. Businesses with reasonable volumes of such transactions could increase profits by 5 – 15% simply by making them through foreign currency accounts, with a diligently selected provider.

What is a foreign currency account used for?

A Foreign Currency Account (FCA) allows non-resident individuals and foreign nationals to hold funds that originate from abroad and that are freely transferable. These funds can therefore be kept in currency and withdrawn at the client’s convenience. A range of currencies are available in the Foreign Currency Account.

How does a Foreign Currency Account work?

A typical bank account generally converts money to and from US dollars for transactions in foreign currencies. A foreign currency account allows you to send and receive funds in multiple currencies.

Why is this helpful? You save time with a streamlined transaction and money by avoiding the high fees that come with conversions.

Reduce volumes of Forex transactions

Being “on both sides of the spread” is expensive, and unnecessary

A foreign currency account provides the opportunity to receive, hold and pay invoices in that foreign currency without having to convert to or from ZAR for every transaction.

An example

Let’s assume the bank is quoting USDZAR 1% off the interbank rate of 14.50 giving the business a Bid / Ask “spread” of 14.355 / 14.645 (the spread) – I.e. bank will buy USD for ZAR14.355 and sell USD for ZAR14.645

An international client pays the business $20,000 for good or services. The business has associated USD expenses of $10,000, immediately payable.

Business does not have a Foreign Currency Account

• $20,000 receipt converted at 14.355 to ZAR287,100
• $10,000 purchased at ZAR146,650 to pay suppliers
• Remaining Balance is ZAR140,450

• 2 forex transactions
• Client “on both sides of the spread” – selling USD at 14.355 & buying at 14.665
• Client is ZAR3,100 (USD214) worse off 

Business has a USD Foreign Currency Account

• $20,000 receipt credited to USD account
• $10,000 paid to suppliers
• $10,000 remaining converted to ZAR143,550

• 1 forex transaction
• Client is ZAR3,100 (USD214) better off 

A Natural Currency Hedge

Foreign currency accounts provide a natural hedge

Currency hedging is the process of eliminating currency risk from a transaction where multiple currencies are involved.

An international transaction with a perfectly hedged currency position has no prospect of future currency loses or gains, with the success of the transaction then based purely on other core goods / services components.

Whilst some currency hedging techniques can be expensive, foreign currency accounts are perhaps the cheapest and easiest hedge available.

Building on the example

The international client pays the business $20,000.00 for good or services. The business has associated USD expenses of $10,000 but now they are only payable in 1 month.

Business does not have a Foreign Currency Account

• $20,000 receipt converted at 14.355 to ZAR287,100
• Business is now exposed to USD10,000 exchange rate risk on USDZAR, they could
  • Wait for a month to buy USD10,000 to pay supplier – the approach many small businesses take, accepting significant currency risk particularly considering the volatility of USDZAR
  • Execute a Forward Exchange Contract (FEC), buying USD10,000 for settlement 1 month forward if the bank allows (and prices reasonably!)
  • Execute a Foreign Exchange transaction and pay supplier 1 month early

Business has a USD Foreign Currency Account

• $20,000 receipt credited to USD account
• $10,000 converted to ZAR143,550
• $10,000 paid to suppliers 1 month later
  • By holding the currency of the future commitment there is a natural hedge and therefore no currency risk

It’s clear that use of the foreign currency account has fully eliminated the exchange rate risk and greatly simplified the operational elements of the transaction.

How can I Open A Foreign Currency Account?

Most of the major banks in South Africa offer foreign currency accounts with the only requirements being that your business hold a local currency (ZAR) account with them and the business has an acceptable reason for holding the account/s. There are however some items to consider.

Interest Rates

Foreign currency accounts held with domestic banks typically pay no interest at all on credit balances. In the current global low interest rate environment this is less of an issue than it may have been years ago, particularly for smaller businesses, but needs to be considered.

Bank Charges & Fees

These vary greatly between the banks but the best offers have no monthly administrative fees, no minimum balances and free online account access.

Transactional charges are a key consideration. Charges for international transfers in the same currency vary greatly. Make sure to understand the full range of charges for payments of different types.

Foreign Exchange Services & Related Fees & Charges

Once a business holds its domestic and foreign currency bank accounts with a bank / authorized dealer it is typically obliged to execute its foreign exchange and money transfer transactions with that institution. It is therefore critical to ensure a full understanding of:

• Forex Markups – the largest driver of cost. The % off the interbank spread, taken by the bank, whilst this may vary according to transaction size, should not vary from day-to-day or even dealer-to-dealer for transactions of the same size
• Fees – any other fees and charges related to the transaction, other than account management
• Services – does the bank or provider perform regulatory documentary functions or do they simply expect their clients to do this

How can Domisa Treasury assist

Domisa Treasury is able to assist SMME businesses in South Africa in managing their currency risk by facilitating the implementation of the correct combination of tools to achieve the optimal currency management solution for their unique business needs. We leverage our strong market relationships to make these solutions a reality for our clients. What we offer:

• Bank accounts – we facilitate the setup of foreign exchange transactional accounts with preferred providers
  • Rand (ZAR) accounts – High interest, no monthly fees, fully transactional internet banking
  • Foreign Currency Accounts – accounts available in all major currencies. No monthly fees, internet banking
    • International Payment Solutions – send, receive and hold foreign currency
    • International money transfer – pay foreign currency invoices directly from your currency account
    • Non-ZAR currency pairs – buy GBP with your USD for example
• Commission, Fees and Transparency – Domisa Treasury supports greater regulation of foreign exchange market participants, authorized dealers and intermediaries alike. Transparency to clients is paramount and we provide full disclosure of deal economics to every client on every transaction
  • Commissions – Domisa operates on published, highly competitive commission tiers:
    • Applicable to all our clients consistently
    • Our systems and processes do not allow deviation from these
    • We do not engage in ‘bait and switch’ pricing where transactions become more expensive for clients after the first few transactions – a pervasive problem in the industry
    • Clients always get our published tiers
    • Our live, online calculator is a highly accurate indication of where our clients are currently dealing
      • Available to everybody and requires no information to be provided in order to get an indication – its an opportunity to show off our fantastic pricing, not a data trawling exercise!
      • Use it to compare us to your current provider in real time
      • Click here to use the live calculator
  • Fees – There are no fees on transactions of R50,000.00 or greater and a flat fee of R250.00 below R50,000.00
  • Service – Domisa facilitates all functions for our clients including deal execution & settlement, regulatory reporting, South African Reserve Bank (SARB) applications and payments (both international & domestic)
• Products – Domisa is able to facilitate the full range of foreign exchange products
  • Same-day, Next-day and ‘Spot’ Foreign Exchange
  • Forwards – Forward Exchange Contracts (FEC)
  • Derivatives – Options and Futures

Please contact us for a free consultation to discuss your business needs and what Domisa Treasury could do to assist you in managing your foreign currency risk in the most efficient and cost-effective manner. Click here to contact us today. 

Want to find out more about Foreign exchange South Africa? Read this article.

What is a CFC account?

A customer foreign currency account is a transactional account denominated in a foreign currency. A foreign currency in our case, is any currency other than Rand. It is available in all major currencies and is a useful mechanism for managing foreign currency receipts and payments. The CFC accounts must also allow for transfers to or from its offshore bank account(s) abroad.

Who could benefit from a CFC account?

Below is a list of some of the benefits of a CFC account:

What is the best foreign currency account in South Africa?

The best foreign currency account in South Africa is dependent on your business’ unique needs. Our expert team at Domisa will be happy to assist you in securing unbeatable rates and managing your currency risk. Contact us today to find out more.

The post Business Essentials: The Foreign Currency Account appeared first on Domisa Treasury.