Buyer’s Tips

Purchasing property in South Africa as a foreigner.

Property in South Africa is normally purchased through a broker or real estate agent, whether it be residential, commercial or industrial property. A real estate agent should be registered as a member of the Estate Agents Board. This way, both purchaser and seller are protected by what is referred to as a fidelity fund certificate (held by a registered estate agent). This is a document which guarantees certain rights for the buyer and seller.

Foreign Exchange Control and the Reserve Bank.

Once a sale agreement for the purchase of property in South Africa has been completed, as a foreigner, the matter of payment must be considered. According to South African law, all such transactions must be routed through the South African Reserve Bank. The South African Reserves Bank refers to foreigners as NON RESIDENTS – whether it be a natural person or legal identity, whose normal place of residence, domicile or registration is outside the common monetary area of South Africa. Non-residents may purchase a property in South Africa and may borrow up to a maximum of 50% of the purchase price in this country, the other 50% of the funds having been brought into the country by the applicant. The total amount that may be borrowed is at the commercial bank’s discretion, and applicants are advised to shop around. All requests for foreign purchases of South African property must be routed through an “Authorised Dealer”, i.e. registered bankers, and not directly to the South African Reserve Bank. The Reserve bank normally takes between 4 to 10 days to process such applications. On receipt of Reserve Bank approval (for a non resident to utilise bond facilities), a non-resident account must be opened by the applicant in South Africa to facilitate bond repayments. This account would normally be funded from abroad or from rentals received on the property purchased. (Subject to the Bank holding the account being provided with a copy of any rental agreement). Exchange Control is currently going through a process of deregulation in South Africa, to make it progressively easier for foreigners to invest in this country, and for South Africans to do business abroad. However, it remains a complex subject and anyone dealing as a non-resident investing in South Africa is strongly advised to consult a reputable property lawyer for advise relating to individual specifications. The Reserve Bank retains considerable control , and while certain guidelines have been set, allowances will be made for exceptional circumstances.

Land Registration

South Africa has one of the most advanced and professionally administered land registration systems in the world. It offers an unusual degree of certainty in regard to the ownership of property, specifically in regard to the details of owners past and present, descriptions of the extent of the property and any limitations or rights on the property.

Frequently Asked Questions

1. Is my investment secure?

The banking systems in South Africa are dependable, established and highly technologically advanced. Transfer of funds through the registered South African banks are secure and guaranteed. Once the money has been transferred through a bank it is normally held in trust by attorneys, either on your behalf, or on behalf of the seller. The concept of the holding of funds in trust by attorneys is a cornerstone of the attorney’s practice and is regulated by the various Law Societies and secured by Attorneys Fidelity Insurance.

2. Will I be able to get my money out of South Africa?

South African law stipulates that funds brought into the country by a non-resident may be repatriated at any time, as well as any capital gain. The processing of repatriations through Exchange Control will probably be dispensed with in the near future.

3. What types of ownership are current?

Freehold is the most current property ownership. Other ownership methods include Leasehold, Sectional Title and Share Block.

4. Can property be owned by non-residents?

Non-residents can own property partially or wholly, in their own names or through ownership of an interest in one or other form of legal entity.

5. Which is the best form of ownership?

The most common form of ownership is that of individual title. However, property may also be held through share ownership in companies, in close corporations or trust, for a number of different reasons, usually relating to savings on tax or transfer duty or protection of assets. Companies and Trusts in South Africa are based on English Law and are very similar in nature to those in England. A close corporation is a type of company which is flexible and cheaper to form and administer than a normal incorporated company. A close corporation or trust can usually be formed in less than a month. A proprietary limited company may take a few weeks longer.

6. Method of ownership

On signature by a purchaser and seller of a valid Deed of Sale, property is acquired by the purchaser. Deeds of Sale are often drafted in the form of an Offer by the purchaser to the seller. While these documents may be described as “Offers to Purchase”, they legally constitute Deeds of Sale, which, on signature, become valid and binding on both parties. Other than the requirement that the sale of a property is to be contained in a document which clearly describes the parties, the property and the purchase price, and the document is signed by both parties, there are no other formal requirements for the execution of an enforceable agreement. In other words, once the signatories sign, they are immediately bound. Accordingly if advice is to be sought, it should be sought before signature. Once the agreement is signed, the actual change of ownership of the property from seller to purchaser is done by a specialised attorney (solicitor) known as a conveyancer, who registers the transfer of ownership at the Deeds Registry. This process normally takes eight to ten weeks.

7. Are there cost in addition to the purchase price?

There are various costs involved in the transfer of property in South Africa. Examples of these, below, are exclusive of Value Added Tax (VAT) at 14%. The “transfer costs” relate to the costs of the transferring attorney. They are calculated on a sliding scale regulated by a tariff and normally amount to between 1% and 2% of the purchase price. So, for example, in respect of a property sold for R300 000.00, the transfer fees are R2 910.00 and for properties over R500 000.00, the transfer fees are R2 910.00 plus R350.00 per R100 000.00 or part thereof, up to and including R1,000,000.00 or part thereof. These costs are normally borne by the purchaser.

Secondly, there is a “transfer duty” a government tax which applies in every case except where the seller is a registered VAT vendor selling the property as stock in trade. (In this case VAT would be payable). Transfer duty is payable by the purchaser. Where the purchaser is a natural person, transfer duty is calculated on the following scale:

* 1% on the first R60 000.00 of the purchase price; * 5% on R60 000.00 to R250 000.00; and 8% on the balance.

Where the purchaser is a legal entity, transfer duty is levied at a flat rate of 10% of the purchase price.

Mortgage Bond Total Fees

R 150 000 R 1 225 R 300 000 R 1 670 R 500 000 R 2 395 plus R350.00 per R100 000.00 or part thereof up to and including R1,000,000.00 whereafter the fee will be R125.00 per R100 000.00 or part thereof. This cost will be borne by the purchaser. In addition, stamp duty will be paid by the purchaser at a rate of 0.2% of the amount secured by the bond. There may also be inspection fees charged by the bank, in the region of 0.2% of the valuation. Thirdly, there is the commission of the estate agent, which is usually 7%. It is normally paid by the seller, although it may be agreed by the parties that it be paid by the purchaser. Fourthly, where mortgage finance is utilised, there will be mortgage bond registration fees payable to the registering attorney according to a prescribed tariff. 8. Can property be leased to other? South African property owners have all the normal rights of ownership including the right to recover rental income from lessees. Rental income is normally taxable in South Africa. 9. To what taxation am I liable? South Africa has a source-based taxation system. In other words, tax is paid on income which is produced in South Africa but not on income which is produced overseas. Accordingly, income received, for example, from the renting out of a property purchased here, is subject to taxation. Taxation of individuals is levied according to a sliding scale and therefore it is not possible to state a fixed rate of taxation. The highest rate applies to persons earning more than R100 000.00 per annum, in which case the tax payable is R34 200.00 plus 45% of the amount over R100 000.00. All other relevant taxes have been outlined above and are paid on transfer of the property, either in the form of transfer duty or VAT, depending on whether the seller of the property is registered as a VAT vendor. 10. Does a property purchase affect applications for permanent residence? Permanent residence applications are assessed completely independently of the issue of property in South Africa. However, in assessing whether an applicant for permanent residence has complied with certain requirements in regard to the amount of funds which must be imported into South Africa, the value of property purchased in South Africa will be included in the calculation of the amounts brought into the country and in this way will facilitate an application for permanent residence.