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 Housing Buying Property in South Africa |
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Expatriate Housing: Buying Property |
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Buying property in South Africa is most often done through a broker or real estate agency. It is prudent to check that the agent you are dealing with is registered with the Estate Agents Board. There are no restrictions on property ownership by foreigners (non-residents), save for a prohibition on illegal aliens owning immovable property within South Africa. Foreigners are referred to as non-residents whether they are natural persons or legal entities, whose normal place of residence, domicile or registration is outside the common monetary area of South Africa.
Property Financing in South Africa Non-residents can purchase property for cash, in which case the transaction is fairly straightforward and is processed without intervention from the South African Reserve Bank. Alternatively, non-residents may borrow up to a maximum of 50% of the purchase price in South Africa with the other 50% of the funds either brought into the country by the purchaser or transferred from a recognised foreign bank to a bank in South Africa. Note that non-residents who are in possession of a valid South African work permit are considered to be residents for the duration of their work permit and are therefore not subject to borrowing restrictions placed on non-residents without work permits. When using a mortgage from a South African bank, a non-resident must open a ‘non-resident’ account in South Africa to facilitate loan 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. However, the Exchange Control Authority allows a non-resident who wishes to obtain permanent residence status in South Africa, to be dealt with as a South African ‘resident’ for exchange control purposes. This takes place upon completion of a so-called Immigrant’s Declaration & Undertaking issued by South African banks. Once such Declaration has been completed, such applicant will be eligible for a 100% mortgage. Bear in mind that you will be expected to apply for and obtain permanent residence within a reasonable period. Off-Plan financing packages are also widely available. They are well worth investigating, since terms are often more advantageous then mortgages. However if you are a non-resident, bear in mind that it is important to conform to the South African Reserve Bank rules. Instead of trying to make sense of them yourself, consult a lawyer or a reputable agent knowledgeable in the area.
Legal Documentation All contracts to acquire land must be in writing, contain certain prescribed information and be signed by both buyer and seller to be valid and legally binding. Contracts most commonly take the form of an Agreement of Sale or Offer to Purchase. Once an Agreement of Sale has been signed by both parties it represents a valid and binding document from which neither party can withdraw without legal consequences. NB: Usually property surveys are not conducted in South Africa prior to purchasing property. Instead, most Agreements of Sale include a standard VOETSTOETS clause, which implies that the property is bought “as is” or “in the exact condition in which the property is found”. It also implies that all patent and latent defects present in the property within the sellers' knowledge must be brought to the attention of the buyer.
Transfer of Ownership The registration of a property transaction (transfer of ownership) is handled by a specially qualified legal practitioner known as a conveyancer. Normally the seller appoints the conveyancer to arrange the registration of transfer, whilst the costs attendant on same are for the account of the buyer.
Additional Costs Associated with Property Purchase There are various costs involved in the transfer of property in South Africa. The following are costs usually borne by the purchaser, unless otherwise agreed: Transfer duty: a tax levied on transfer of ownership of fixed property. Where the purchaser is a company or a trust, transfer duty is levied at a flat rate of 8% of the purchase price. If the purchaser is a natural person, the duty is calculated on the following scale:
Transfer Costs – these are conveyancing and attorney's fees. They are usually calculated on a sliding scale regulated by a tariff and amount to between 1-2% of the purchase price. Mortgage costs are the costs incurred for raising mortgage finance, including initiation and valuation fees. Mortgage registration fees according to a prescribed tariff are payable to the registering attorney. Estate Agents Commission is normally paid by the seller, amounts to between 7 and 10 per cent and attracts VAT (currently 14%).
Tax Planning It is important to have an understanding of the tax laws of the country in which you wish to invest. Here you will find an overview of the South African system to help you plan your property investment.
For income tax purposes, South Africa is a residence-based (not source-based) taxation system. Investors in South African property will have to pay tax on the received income at the normal South African rates after expenses, such as mortgage interest, have been deducted. South Africa has double taxation agreements with many countries and the method for taking advantage of this relief will depend on the specific agreement between your home country and South Africa. It is the responsibility of the non- resident to register as a South African taxpayer.
CGT is applied to the sale of all fixed property in South Africa and, for non-residents, becomes due when the property is sold. The expenses incurred in improving a property can be deducted from the capital gain as well as other costs. CGT is payable in the year in which the asset is disposed of and is calculated by adding 25% of the capital gain, or profit, to the individual’s income for that year and taxing that income at the individual's marginal rate of income tax. The maximum marginal income tax rate for individuals in South Africa is presently 40% (reached at taxable income levels above R300 001). The capital gain is calculated and disclosed in the individual’s income tax return for the year in which it is sold. South African residents do not pay CGT on the first R1.5milion of profit made on the disposal of their primary residence.
There is no VAT charged on the purchase of a property unless it is a new build in which case VAT is built into the purchase price. Neither are rents on residential properties subject to VAT.
Inheritance Tax was abolished when Capital Gains Tax was introduced in 2001. However at the time of death the owner of the property is deemed to have disposed of it and CGT becomes due at this point.
Stamp Duty on property purchase is not charged in South Africa. Rental agreements, however, are liable to Stamp Duty although the first ZAR 500 is exempted.
Municipal taxes, or property taxes, are charged for the maintenance of local services and typically vary from province to province as well as individual municipalities. The municipal valuation of the property is used to calculate the amount of tax due.
Repatriation of Funds from South Africa The Exchange Control Rulings stipulate that funds brought into the country by a non-resident may be repatriated at any time, as well as any capital gain thereon after deduction of any Capital Gains Tax payable. However, a new immigrant (that is, someone who has completed the Immigrant’s Declaration & Undertaking) may only repatriate funds introduced from abroad, and capital gains accruing thereon, within the first 5 years of the date of signature of such Declaration. Thereafter, such person will be bound by Exchange Control restrictions imposed on residents with respect to the repatriation of funds.
For insights on South African residential propery market, see our October 2008 feature article "Is South African Property Still a Good Investment". Last updated December 5, 2009 |
