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Published on 02 Mar 2023
The favourable value of the Rand compared to most major foreign currencies makes residential real estate in South Africa a very attractive investment option, with another drawcard being that South Africa is home to several internationally acclaimed and award-winning destinations.
Although the Western Cape and Garden Route are firm favourites with foreign buyers, the coastal regions aren’t the only areas to enjoy investor interest, although the buyer demographics do differ inland where foreign nationals generally buy property for work rather than leisure purposes.
For instance, Pretoria East has become a popular residential destination for foreign diplomats and industry leaders who are attracted by the world-class estates in the area, with diplomatic communities established in the most exclusive estates.
So, what does a local seller or foreign buyer need to know regarding international property transactions in South Africa?
The basics
It’s 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.
South Africa has one of the best Deeds Registry systems in the world, offering certainty and security in respect of property ownership and tenure and non-residents are subject to the same well-established laws and regulations as South Africans when buying property.
Once the buyer has chosen a property, the agent will prepare an Offer to Purchase, which is open to acceptance by the Seller for an agreed period of time during which the offer is irrevocable and, once accepted by the Seller, it becomes a binding contract.
Visa requirements
Whilst foreign investors can easily buy 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 come to out for summer or regular short visits.
However, buyers from a visa restricted country have to apply for a visa from the South African representative in that country and although a short-term visa application is usually relatively simple and quick, it can be tiresome if they plan to make regular short visits.
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 retirees have a choice of two visa options; a Permit for Retired Persons which can be made on a temporary (valid for four years at a time) or permanent residency basis and an Independent Financial Persons’ Permit which is for permanent residency only.
Purchasing Costs
It’s essential that buyers take additional costs into account when determining their budgets so that they aren’t blindsided by hefty additional payments due after they have signed on the dotted line.
The costliest expenses are the various taxes which property owners in South Africa must pay:
1. The transfer duty, which is calculated according to the purchase price, is paid by the buyer prior to the registration.
2. Property rates and taxes, payable annually or monthly and calculated on the municipal value of the property. A portion has to be paid in advance so that a rates clearance certificate can be obtained for the registration.
3. Capital Gains Tax, calculated on the profit, is due once the property is sold. For a natural person the rate is between 0-16,4% of the capital gain.
4. The conveyancer is liable to pay withholding tax of 5% of the proceeds of the sale for property transactions of more than R2 million. This is an advance payment on Capital Gains Tax for non-resident Sellers.
Obtaining finance
Due to South Africa’s interest rates being higher than in many other countries, most foreign investors who require finance will do so abroad, but non-residents most certainly can apply for a home loan from a South African Financial Institution.
However, due to the Reserve Banks 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.
International transfer of funds
It’s important 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 as, 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 is also advisable for foreign purchasers 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.
Spouse’s signature
If a non-resident is the buyer, their spouse’s signature is not required on the transfer documents and the transfer documents will merely mention which country’s laws govern the marriage which is where the husband resided at the time of marriage and not where the marriage was solemnised.
The situation differs when the non-resident is the seller of the property and in such a situation the spouse’s signature is also required.
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. Unfortunately, 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 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.
5% if the Seller is a natural person
7.5% if the Seller is a company
10% if the Seller is a Trust
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.
A non-resident is never eligible for the R2 000 000.00 exemption in respect of Capital Gains Tax as this is only applicable to a primary residence.
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