Can I buy a property in South Africa as a
non-resident?
Yes. Even if you do not plan to live in South Africa,
(in fact some of our clients buy off-plan from overseas
and never actually see their purchase) you can buy property
or land in South Africa. As a non-resident, you are
also entitled to apply for a mortgage of up to 50% of
the value of the property.
Recent speculation about possible legal changes, restricting
foreign ownership, are not new news, and there may well
be some type of change in the law in the future (most
countries around the world have some sort of restriction
on foreign ownership of property or land, and SA is currently
one of only 10 countries worldwide which does not.) No-one
knows what it will be or when it could happen, but at
the moment these rumours have no real foundation.
What costs do I have to pay when purchasing a property in South Africa?
The biggest cost to you, as the buyer, will be a government tax called Transfer Duty which applies to all purchases over 500,000 ZAR plus conveyancing costs, transfer fees, pro-rata rates, deeds office levies and any costs associated with acquiring a rates clearance certificate. The costs of a conveyancer are fixed and calculated on a sliding scale. It is the seller who appoints the conveyancer, but the purchaser who pays. This cost is subject to VAT.
If you opt to take out a bond (mortgage) then you will also need to pay an initiation fee, valuation fee, administration fee and a registration fee.
Do I need to pay VAT on my purchase?
If the property you are buying is being sold by someone who, on the date of transfer, is registered as a VAT vendor, then that seller will have to pay VAT to the South African Revenue Services. Normally the VAT is included in the price, but sometimes it is not (which means the on cost to you is far greater than paying Trans. VAT in South Africa is 14%.
How long does it take to buy property?
Once you have found the property you wish to purchase,
and your offer has been accepted, the process normally
takes three months. Only one conveyancer/attorney acts
on behalf of both buyer and seller, which speeds up
the whole process, and your signature on the agreement
of sale, once accepted, is legally binding (subject
to any special conditions you have specified). South
Africa has one of the best land registration systems
in the world and the process is usually very smooth.
What happens if I change my mind?
The 'Agreement of Sale' or 'Offer to Purchase' is a
legal document. You can place an offer subject to certain
conditions (which will have a time limit) such as 'subject
to finance'. Once these conditions have been fulfilled
by the relevant parties, you are legally bound to pay
for that property at the agreed price. This works well
for the foreign buyer, as it means that once you leave
S.A., no other buyer can come in with a better offer
and 'gazump' you.
How do I know that the property is a good
buy and there are no major faults with it?
Property here is 'sold as seen'. Surveys are not standard
practice as they are in other countries. If the seller
has intentionally not told you about any defect then
you have legal recourse. Otherwise it is important that
you check as much of the property as possible. If you
are buying an older home then it would be advisable
to get some sort of survey on the structure and build.
Every property sold has to undergo an electrical inspection
and a beetle inspection at the seller's expense. You
will receive an electrical and beetle certificate, confirming
that this has been done. Other than that, no other formal
checks are normally made unless you have a mortgage
on the property, in which case the bank involved would
do their own valuation.
What will I have to pay in advance of legally
owning the property (in addition to the actual final
purchase price)?
Within one to two weeks of your offer being accepted,
you will be asked to pay a deposit of normally 10% of
the purchase price. If you are bringing funds in from
overseas, bear in mind that the international banking
system can take up to a week to get monies into S.A.
so it is worthwhile preparing your transfer in advance
of the deadline. If you do not pay your deposit in time
then you are in breech of contract and the seller could
withdraw the sale. You will then be required to pay
the transfer costs, which cover the legal costs of the
transaction. This cost is regulated by a standard tariff
and is calculated on a sliding scale based on the value
of the property you have purchased.
In the following two weeks you will be required to pay
this tax. The balance of the purchase price will be
requested about one month before the property is legally
yours. Any monies transferred to a solicitors trust
account will earn interest for you.
How much is Transfer Duty?
The biggest cost to you, as a buyer, will be a government
tax called Transfer Duty which is applied to all purchases
over 500,000 ZAR.
0-500,000 ZAR - transfer duty is 0
500,000 - 1000,000 transfer duty is 5% on the amount
above R500,000
1,000,000 and above transfer duty is R25,000 plus 8%
on the amount above R1,000,000
In addition you will need to pay attorney fees, deeds
office fees and levy and VAT on these charges so a typical
bill could be:
Purchase price of R1,000,000; transfer duty plus other
purchase costs: R36,800
Purchase price of R2,000,000; costs R121,460
Purchase price of R3,000,000; costs R206,776
Purchase price of R5,000,000; costs R375,440
Purchase price R10,000,000; costs R787,040
What about TAX?
Even if you are not resident, you will be subject to
tax on any income received when renting the property.
Income tax works on a sliding scale (and is very similar
to the UK). In addition - when you sell the property
and repatriate the funds you will be liable to be taxed
on any gain (Capital Gains Tax) you have made on the
property. CGT is calculated as 40% of 25% of the gain.
In other words, 10% of the profit.
Does owning a property entitle me to get residency
in South Africa?
Owning a property does not change your chances or indeed
entitle you to enhanced immigration status. The only
influence it has is the value of the property counts
towards the amount of funds you are bringing into the
country, were you to then apply for Permanent Residency
(or Temporary Residency.)
Is my money safe/Exchange Control?
Nowadays, the banking system in South Africa is not
only well established, but most of the facilities you
have on offer from your home bank are available here,
and although it costs money to make a transaction, the
systems are similar to any first world economy.
All funds introduced into SA for the purchase of property maybe repatriated along with any profit (less Capital Gains Tax), provided that the title deed has been stamped “non-resident”
What documentation am I required to complete when purchasing property in SA?
After the offer to purchase/Agreement of Sale has been fully signed by both parties, as a newcomer to SA you will have to register for income tax through the South African Revenue Services (SARS) which is obligatory for any property owner in South Africa (even if you have only bought the property as a holiday home and do not plan to rent it out.) This will require you to complete an annual tax return, something which can be handled from overseas with the help of a local accountant at a nominal cost.
Secondly, the Financial Intelligence Centre Act (FICA), recently set up, now requires any person entering into financial transaction to disclose all their personal particulars.
If you are going to be out of the country but will need matters handled for you relating to the purchase i.e. you bought the property within a company, then you may require a power of attorney which you can set up before you leave.
What is involved in buying a guest house?
Many foreigners use the purchase of a guest house to acquire a business permit to live in SA, and with the current focus on the 2010 world cup in SA, and the apparent shortage of beds in the city, there has never been a better time to buy a guest house or B&B. In essence, buying a guest house comes down to the advice you receive, your knowledge of the market, your own experience and ultimately, your chosen lifestyle (e.g. a city boutique hotel or a rural country lodge setting). Because the permit application will be intrinsically linked to the business you set up, it is vital that you acquire the property the right way and also that you are totally aware of the council approval required. Choosing the right property, i.e. one that is likely to be approved by the council, is therefore very important unless you wish to run the risk that, should your temporary permit need renewing, you would be exposed to the possibility of being not being granted a renewal or being declined permanent residency.
Space have experience of buying property to be used as a guest house and can advise on all matters relating to this. For a case history on this subject please click on this link:
