International Buyers
Property in South Africa is normally purchased through a broker or real estate agent, whether it is residential, commercial or industrial property. A real estate agent should be registered as a member of the Estate Agents Affairs Board (EAAB). 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.
Are there any restrictions on Non-residents buying property in South Africa?
The answer to this is No, save for a prohibition on illegal aliens owning immovable property in South Africa.
Non-residents will of course be subject to the same laws and regulations as South Africans and it is compliance with these stringent requirements that ensures the efficiency of the South African land registration system and security of tenure. Should the non resident not wish to purchase the property in his or her own name but rather in the name of an entity, such entity must be locally registered and meet the requirements inherent in registration of the chosen entity, such as the requirements of the Companies Act.
A Non-resident may decide to own the property through share ownership in a company, membership in a close corporation (unique to South Africa) or as a beneficiary in a trust. In the event of a non-resident acquiring property in the name of an entity, funds brought into the country will represent a loan to the local entity and will require Exchange Control approval. For the most part however, property is registered in the name of the purchaser as an individual.
Note that purchasers will have to finalise their choice of entity in which to purchase the property prior to signing any Offer to Purchase or Agreement of Sale, as no changes can be made at a later date without the possibility of penalties being imposed and resultant delays in the transaction. Finally, a non-resident can purchase South African property over the internet without entering the country! However, should the prospective purchaser intend residing in the property for any length of time, he or she will need to comply with the requirements of the Immigration Act and either have a valid permit to temporarily remain in the country or be in possession of a permanent residency permit.
How can Foreign funds be brought into South Africa for a property Acquisition?
Foreign funds can be paid into any nominated bank account in South Africa. This account will usually be the trust account of the estate agent or transferring attorneys into which the deposit for the property and the balance of the purchase price is paid. These funds will be invested for the non-resident’s benefit and the non-resident can rest assured that such a transfer is secure and guaranteed, as the operation of these trust accounts is regulated by the professional boards overseeing the operations of both attorneys and estate agents.
When a non-resident transfers funds from a foreign source into a South African bank account, a record known as a “deal receipt” is kept of the foreign funds received by the South African bank. This is an important document which must be retained for purposes of repatriation of the funds.
Can money be borrowed in South Africa to purchase a property?
The South African Reserve Bank will adjudge all foreigners not having their domicile in South Africa as non-residents. This however does not include foreigners with South African work permits who will be considered to be residents for the duration of their work permit. What this means is that non-residents are restricted in their borrowing ratio to 50% of the purchase price, while the remaining 50% must be brought into the country in cash from a foreign bank.
In order to qualify for a South African mortgage bond, the non-resident will need to provide proof of earnings and comply with the Financial Intelligence Centre Act. This Act, in simple terms, requires identification of the non-resident for money laundering purposes, and involves the production of certain documents such as a passport and proof of residential address.
Other than the purchase price, are there any other costs for which the purchaser will be liable?
Yes. The purchaser is usually liable for the following costs:
• Transfer duty, which is a tax levied on the acquisition value (purchase price) of the property. This amount is payable prior to transfer and must be paid on demand from the attorneys. The percentages applicable are:
Natural purchasers
R 0 – R600 000: exempt
R 600 001 - 1 000 000: 3%
R 1000 001 – 1 500 000: 5%
R1500 000 >: 8%
Entities
• Transfer fees based on the purchase price, (this is not payable if the seller is VAT registered);
• Deeds Office levies, pro-rata rates and taxes/ sectional title levies;
• Expenses for obtaining a rates/levy clearance certificate.
• Further costs, including attorney’s fees and bank charges, will be incurred if the purchaser registers a mortgage bond.
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. 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.
8. To what taxation am I liable?
South Africa has a residence-based system, which means residents are - subject to certain exclusions - taxed on their worldwide income, irrespective of where their income was earned. Non-residents are, however, taxed on their income from a South African source. Foreign taxes are credited against South African tax payable on foreign income.
Income received from the renting out of a property purchased in South Africa, is subject to taxation; a description of the asset or physical address of the property must be furnished. Expenses such as bond interest, rates and taxes, insurance and repairs may - subject to certain conditions - be claimed against rental income. You generally deduct your rental expenses in the year you pay them.
Taxation of individuals is levied according to their income margin for a specific year and therefore it is not possible to state a fixed rate of taxation. 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.
9. 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.
Are there any restrictions on Non-residents buying property in South Africa?
The answer to this is No, save for a prohibition on illegal aliens owning immovable property in South Africa.
Non-residents will of course be subject to the same laws and regulations as South Africans and it is compliance with these stringent requirements that ensures the efficiency of the South African land registration system and security of tenure. Should the non resident not wish to purchase the property in his or her own name but rather in the name of an entity, such entity must be locally registered and meet the requirements inherent in registration of the chosen entity, such as the requirements of the Companies Act.
A Non-resident may decide to own the property through share ownership in a company, membership in a close corporation (unique to South Africa) or as a beneficiary in a trust. In the event of a non-resident acquiring property in the name of an entity, funds brought into the country will represent a loan to the local entity and will require Exchange Control approval. For the most part however, property is registered in the name of the purchaser as an individual.
Note that purchasers will have to finalise their choice of entity in which to purchase the property prior to signing any Offer to Purchase or Agreement of Sale, as no changes can be made at a later date without the possibility of penalties being imposed and resultant delays in the transaction. Finally, a non-resident can purchase South African property over the internet without entering the country! However, should the prospective purchaser intend residing in the property for any length of time, he or she will need to comply with the requirements of the Immigration Act and either have a valid permit to temporarily remain in the country or be in possession of a permanent residency permit.
How can Foreign funds be brought into South Africa for a property Acquisition?
Foreign funds can be paid into any nominated bank account in South Africa. This account will usually be the trust account of the estate agent or transferring attorneys into which the deposit for the property and the balance of the purchase price is paid. These funds will be invested for the non-resident’s benefit and the non-resident can rest assured that such a transfer is secure and guaranteed, as the operation of these trust accounts is regulated by the professional boards overseeing the operations of both attorneys and estate agents.
When a non-resident transfers funds from a foreign source into a South African bank account, a record known as a “deal receipt” is kept of the foreign funds received by the South African bank. This is an important document which must be retained for purposes of repatriation of the funds.
Can money be borrowed in South Africa to purchase a property?
The South African Reserve Bank will adjudge all foreigners not having their domicile in South Africa as non-residents. This however does not include foreigners with South African work permits who will be considered to be residents for the duration of their work permit. What this means is that non-residents are restricted in their borrowing ratio to 50% of the purchase price, while the remaining 50% must be brought into the country in cash from a foreign bank.
In order to qualify for a South African mortgage bond, the non-resident will need to provide proof of earnings and comply with the Financial Intelligence Centre Act. This Act, in simple terms, requires identification of the non-resident for money laundering purposes, and involves the production of certain documents such as a passport and proof of residential address.
Other than the purchase price, are there any other costs for which the purchaser will be liable?
Yes. The purchaser is usually liable for the following costs:
• Transfer duty, which is a tax levied on the acquisition value (purchase price) of the property. This amount is payable prior to transfer and must be paid on demand from the attorneys. The percentages applicable are:
Natural purchasers
R 0 – R600 000: exempt
R 600 001 - 1 000 000: 3%
R 1000 001 – 1 500 000: 5%
R1500 000 >: 8%
Entities
• Transfer fees based on the purchase price, (this is not payable if the seller is VAT registered);
• Deeds Office levies, pro-rata rates and taxes/ sectional title levies;
• Expenses for obtaining a rates/levy clearance certificate.
• Further costs, including attorney’s fees and bank charges, will be incurred if the purchaser registers a mortgage bond.
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. 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.
8. To what taxation am I liable?
South Africa has a residence-based system, which means residents are - subject to certain exclusions - taxed on their worldwide income, irrespective of where their income was earned. Non-residents are, however, taxed on their income from a South African source. Foreign taxes are credited against South African tax payable on foreign income.
Income received from the renting out of a property purchased in South Africa, is subject to taxation; a description of the asset or physical address of the property must be furnished. Expenses such as bond interest, rates and taxes, insurance and repairs may - subject to certain conditions - be claimed against rental income. You generally deduct your rental expenses in the year you pay them.
Taxation of individuals is levied according to their income margin for a specific year and therefore it is not possible to state a fixed rate of taxation. 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.
9. 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.
