Investing in property in a foreign country can be an exciting endeavour, offering the potential for both personal enjoyment and financial gain And, in South Africa, investors are spoilt for choice with a wide variety of lifestyle options, from luxury beachfront living to wineland retreats.
Buying property in South Africa is a relatively simple process, especially if you’re working with reputable, professional realtors and their accredited legal partners who can help to guide the buyer and navigate any obstacles encountered.
However, understanding the legal aspects and purchase process before you begin is essential to ensure a smooth and successful transaction.
Visa requirements
Whilst foreign buyers can easily purchase property over the internet from abroad, they need to ensure that they obtain the correct visa to enable them to spend time in their new acquisitions.
The visa for which they apply will largely depend on their country of origin, how long they plan to stay in South Africa and the purpose of their visit.
There are many countries whose citizens are exempt from visas to visit South Africa for a stay of up to 90 days, which is ideal for investment buyers who plan to use their property as a summer retreat or regular short visits.
Buyers from a visa-restricted country will have to apply for a visa from the South African representative in that country and in this case, a better option is to apply for a long-term visa to avoid the stress and inconvenience of regular applications.”
South Africa is also very appealing as a retirement destination as it offers a quality lifestyle and favourable exchange rate, and these investors have a choice of two visa options:
Understanding Ownership Rights
Freehold Title: This grants the buyer full ownership of both the land and the property. Foreigners can purchase freehold properties in South Africa without restrictions.
Sectional Title: This is a common ownership structure for apartments and townhouses. Foreigners can purchase sectional title properties as long as the development has been approved for foreign ownership.
Leasehold: Leasehold properties involve owning the building or structure on a leased piece of land. These leases are typically long-term and can be transferred to new owners.
Obtaining finance
Although non-residents can apply for a home loan from a South African Financial Institution, with South Africa’s interest rates being higher than in many other countries, foreign investors who require finance will generally apply abroad to secure more favourable terms.
Also, due to Reserve bank exchange control requirements, they may only obtain a loan for 50% of the purchase price and the sale will then be subject to a suspensive condition which will render the contract null and void if the loan application is unsuccessful.
Finding a Reputable Real Estate Agent
A trusted real estate agent with experience in international transactions is invaluable. They can help you navigate the local market, identify properties that meet your criteria, and guide you through the purchasing process.
Choose an agent who is well-versed in the legal requirements for foreign buyers and, if possible, one with an international affiliation like Lew Geffen Sotheby’s |International Realty.
Appointing a Conveyancer
A conveyancer is a legal professional who specializes in property transactions and in South Africa, using a conveyancer is mandatory when transferring property ownership.
The conveyancer will handle all legal aspects of the transaction, including verifying the property's title, conducting searches, and preparing the necessary documents.
Drafting the Offer to Purchase
Once you've found a property you're interested in, your real estate agent will assist you in drafting an Offer to Purchase.
This document outlines the terms and conditions of the sale, including the purchase price, deposit, and any contingencies. It's important to have legal representation to review and negotiate the terms to protect your interests.
Signing of transfer documents outside of South Africa
There are several options available with the most cost-effective being to sign the documents at the South African Embassy/Consulate, however, this is not always an option as in some countries the consulate may be a considerable distance from where the seller resides.
Another option is if the country in which the buyer resides is a member of the Hague Convention as the documents can then be signed in front of a Notary Public and an Apostille will be attached.
The third alternative is to have the person sign a Special Power of Attorney whilst they are in South Africa and, whereby, they authorise someone else to sign all the transfer documents on their behalf.
Withholding tax
Currently there are no restrictions on ownership by a non-resident in South Africa but, in terms of Section 35A of the Income Tax Act No.58 of 1962, when a foreigner sells a property in South Africa, the purchaser is required to withhold a percentage of the purchaser price.
This is in order to avoid the full funds being taken out of the country without Capital Gains Tax being paid, however, one can apply to SARS for a tax directive in this regard and have the amount reduced before it becomes due.
International transfer of funds
It’s essential that buyers retain the source document as proof of the transference of the cash portion from abroad as they need it to repatriate the funds once the property is sold. Without it, foreign sellers have to apply to the Reserve Bank for approval before the funds can be transferred out of the South Africa.”
It’s also advisable to open a local bank account to deal with any funds earned from their properties as well as the regular payments required to deal with the property before leaving the country. A non-resident is never eligible for exemptions in respect of Capital Gains Tax as this is only applicable to a primary residence.
Investing in property in South Africa as a foreigner offers the potential for lucrative returns and an opportunity to experience the country's unique lifestyle and by familiarising yourself with the regulations and seeking professional guidance, you can navigate the complexities of buying property in South Africa with confidence and peace of mind.
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