10 Most Frequently Questions Asked by Foreigners or Non-Residents Buying Property In South Africa
South Africa is an attractive investment opportunity for foreign buyers due to favourable exchange rates, lifestyle options, luxury beachfront living, mountain retreats, warm weather, and internationally acclaimed destinations, despite our political turmoil and energy crisis.
South Africa follows a system where every piece of land is represented on a diagram and ownership is recorded in the Deeds Office. It has one of the best Deeds Registry systems in the world which can trace ownership of property back hundreds of years, and non-residents are subject to the same well-established laws relating to property transactions.
The 10 most frequently asked questions by foreigners buying property in South Africa:
- Am I allowed to buy property in South Africa?
YES. Foreigners can invest in property in our country without restriction (except for illegal aliens). They will have all the same rights of ownership as locals.
Our law refers to foreign buyers as “non-residents” – applies to natural persons and foreign companies. It is important to know what is involved with home ownership. Homeowners are liable to pay property rates and taxes to the local municipality as well as utilities (water, electricity, sewerage, refuse removal). Homeowners must transfer the utilities to their names by contacting the local municipality and/or Eskom. It is advisable that e.g. Cape Town homeowners need to register for the City of Cape Town’s e-services to receive e-billing.
If the property is in a communal housing scheme, there will also be levies payable to the Body Corporate or Homeowners Association. Property owners are issued with a Title Deed prepared by a conveyancer and registered at the Deeds Office. This serves as proof of property ownership and contains all the conditions relating to the property. There are various insurances that may be applicable: such as building insurance for the structure of the property, life insurance, household content insurance and also mortgage protection insurance – which covers mortgage re-payments.
- How do I find a property?
Approach an estate agent to mandate them to source a property or, like the locals, look online for properties you are interested in. There are a variety of property portals available in South Africa. In South Africa, normally only sellers mandate estate agents to market their property – so the concept of a buyer’s agent is fairly “informal”. A buyer’s agent can however share the sales commission and the majority of “sellers agents” will share their commission with a buyer’s agent.
If you would like to buy an investment property to rent out, you need to consider whether it would be long-term or short-term leasing. Many sectional title schemes have restrictions against short-term leasing like Air BnB, so it is important to find out this information from the Body Corporate before committing contractually to a property.
Get a local estate agent to act as your guide throughout the process, as it is very different to some other countries.
For example, in the UK, before a contract is signed, properties must be structurally surveyed, the buyer must have bond approval and insurance must be in place – which is not the case in South Africa. There is also an “exchange of contracts” process in the UK that is not followed in South Africa where each party signs an identical contract. The UK attorneys (solicitors) representing each party have a telephone conversation where they read out the terms to each other before posting the contracts to each other. Up until this point, the parties can walk away from the deal up. This is not done in South Africa, where our contracts are legally binding from the date of sale, subject to the suspensive conditions.
- Will I pay income tax in South Africa?
Non-residents will only be liable to pay income tax on income coming from a South African source. If the property is rented out, income tax is payable on the rental income.
SARS (South African Revenue Services) implements a “physical presence test” to determine if a non-resident can be considered a “resident” for tax purposes. If a non-resident earns income in South Africa and spends 91 days in total in South Africa over a period of one tax year, then SARS will consider them to be a “resident” for tax purposes. However, any individual who meets the physical presence test, but is outside South Africa for a continuous period of at least 330 full days, will not be regarded as a resident from the day on which that individual ceased to be physically present.
In addition, non-residents will be liable to pay Capital Gains Tax in certain circumstances when the property is sold. • No tax is levied on foreign pensions.
- What documents do I need?
South Africa’s FICA laws state that estate agents and attorneys must be able to verify the identity of their clients.
They must determine whether you as the foreign client is a prominent public official in your country of origin or related to or affiliated with such a person.
They must also screen you as the foreign client against the “targeted financial sanctions list” established by the UN – this can be found on the FIC website.
You must provide them with:
• your passport. If you reside in South Africa, you must also provide them with a copy of your visa – which they need to verify as valid.
• proof of residence not older than 3 months.
• bank statements – proof of funds.
If you are not willing to give them these documents, they may not transact with you.
- How do I enter into a contract?
Our law states that all agreements for the sale and purchase of immovable property must be in writing and they may not be electronically signed. All sale agreements require “wet ink” signatures.
Your estate agent will provide you with a standard Offer to Purchase (OTP) that you must sign first, and which will set a time period for acceptance of your offer by the Seller. You must ensure that you understand all the material terms of the OTP, especially terms that are not common in your home country. For example, the concept of “voetstoots” which is a Roman-Dutch principle not applicable in all countries. Very importantly, if you are married, you need to inform the estate agent about it. The laws of the country applicable to your marriage will apply, and it may be necessary for your spouse to also be a party to the contract, or to at least sign the contract. Regardless of your own country’s laws, The South African Deeds Office will require that all paperwork be signed by both spouses, even if the intention is that the property be registered in only one of their names.
If you are buying a property from outside South Africa (i.e. you are not in the country), insist that your estate agent provide you with an OTPs without many blank spaces - to ensure the OTP is completed correctly. You must print out the OTP, sign in wet ink, scan and send it back to your estate agent. Once the OTP has been counter-signed by the Seller, a valid and binding contract comes into existing, subject to any suspensive conditions.
- The OTP requires me to pay a deposit. Will my money be safe?
South Africa’s banking systems are dependable, established and highly advanced. The transfer of funds to our banks is secure and guaranteed. • Funds being paid in cash via EFT from overseas will be subject to local FICA laws, meaning that cross-border EFT transactions over R50,000 must be reported to the Financial Intelligence Centre.
The funds can either be paid to:
6.1 the transferring attorney, where the funds will be held in trust pending transfer, or
6.2 paid into a Buyers Trust account (opened at Standard Bank or Mercantile Bank) into your name, from which Buyers Trust will issue a guarantee to the conveyancer for either the deposit or the full purchase amount (depending on the OTP).
The funds will only be paid out by the conveyancer to the Seller once the property is registered in the name of the Purchaser.
- Can I get a bond in South Africa and what are the mortgage options?
YES, but South African banks will usually only grant 50% bonds to non-residents. This means that foreigners must be able to pay the balance in cash. The loan to a foreigner must also be approved by the South African Reserve Bank (SARB).
Non-residents who are in possession of a valid South African work permit are considered to be residents for the duration of their permit, meaning that they will not be subject to the same borrowing restrictions as “non-residents”. Banks will consider giving resident foreigners higher loans. To qualify for a mortgage, the client must show that their monthly repayments will not exceed a third of their income and they must have a good credit history.
Mortgage terms are personalised, but are usually for 20, 25 or 30 years. Most banks require the mortgage to be re-paid before the buyer turns 70. It is always advisable to use a mortgage originator to explore the various options and get the best possible deal.
Fixed vs variable interest rates
• The interest rate offered will be determined subject to the bank’s risk policy and the client’s personal application.
• South African interest rates are linked to the prime rate of interest set by the Reserve Bank (currently 11.75%)
• Fixed-rate mortgages guarantee that the client’s interest rate remains the same for a set amount of time (usually five years). However, if fixed, the interest rate offered by the bank will generally be higher than if it was variable.
• Variable-rate mortgages are more common in South Africa. This means that monthly repayments will fluctuate depending on prime. The bank will always inform you when the interest rate has changed and show what your new monthly instalment will be.
• It is not possible to take out a mortgage in a foreign country to mortgage a property in South Africa.
- What is the process to have the property registered in my name? What are the costs involved?
This is called the “conveyancing process”. The seller customarily appoints the conveyancer or transferring attorney.
There are 3 sets of attorneys involved:
• Transferring attorney – registers the property into your name (appointed by Seller)
• Bond attorney – registers the bond over the property (appointed by bank)
• Bond cancellation attorney – cancels the seller’s existing mortgage bond over the property (appointed by bank)
The purchaser will need to sign transfer documents at the transfer attorney, and bond documents at the bond attorney. • If the cpurchaser is not in the country, depending on where they are, they will need to sign in front of a notary public or at the South African embassy. The transferring attorney will advise specifically on how and where they must sign. This is governed by international Law (The Hague Convention) and may be time consuming and costly.
In South Africa, the purchaser pays all costs of the transaction. The transfer of the property and the registration of the bond are two separate transactions. The purchaser will receive a statement of account for both transactions (even if the same attorney is attending to both). The purchaser is also liable to pay transfer duty (not for new builds). This is a tax levied by the South African Revenue Service on the acquisition of property. It is determined on a sliding scale, but properties valued less than R1.1 million are exempt from transfer duty.
The transferring attorneys will obtain a transfer duty receipt from SARS, a rates clearance certificate from the municipality and any Home Owners consents (if applicable). The bond attorney will obtain a “proceed to lodge” from the bank. Once these are all received, the transferring attorney will arrange for lodgement in the Deeds Office.
- What is the Deeds Office?
It is the central institution for the registration of transfers, bonds, bond cancellations, servitudes etc.
The transfer, bond and cancellation of the existing bond will all be lodged simultaneously at the Deeds Office and go through two levels of examination by examiners. The examiners check that all documents are correct and that all conditions relating to the property and the bond are properly recorded and carried forward into the title deed. The Registrar of Deeds and an Executing conveyancer will then sign your title deed, at which point the change of ownership is finalised.
The original title deeds are delivered to the transferring attorneys and will be sent to the bond bank for safe keeping. If it is a cash deal, the title deed will be delivered to the purchaser. The Deeds office also micro-films all deeds for digital records. If the original title deed is lost, you can apply to have a new title deed issued for a fee.
- When I sell my property, may I take my money out of South Africa again?
South Africa’s Exchange Control laws allows foreigners to repatriate the funds they brought into the country to buy the property, together with any profit thereon, at any time.
However, Capital Gains Tax will be deducted from the profit. Section 35A of the South African Income Tax Act provides that, where the Seller is a non-resident and the purchase price is over R2 million, the Purchaser is obliged to withhold a portion of the purchase price and pay it over to SARS. In practice, the transferring attorney will pay the amount to SARS.
The amount to be withheld is as follows:
• Natural person – 7,5%
• Companies – 10%
• Trusts – 15%