Buying property as a non-resident
PUBLISHED 11 JUL 2017
South Africa has millions of annual foreign visitors who purchase property once they experience our beautiful country and its people. The Hoedspruit property market in particular features well in the second home property segment. Foreigners can purchase and own immovable property in South Africa without restriction - non-nationals are subject to the same laws as nationals. The only ineligible people are illegal aliens who are not allowed to own immovable property in SA.
In some of the wildlife estates the percentage of foreigners owning property is as high as 10% and every holiday season we are welcoming international visitors wishing to purchase a second home.
Here is some useful information to familiarize you with the ins-and outs of buying property as a non-resident.
South Africa is reputed to have one of the best deeds registration systems worldwide with an exceptional degree of accuracy and security of tenure being guaranteed. Property can be owned individually, jointly in undivided shares or by an entity such as a company, close corporation, trust or a similar entity registered outside South Africa. Our South African property sale processes are acknowledged as being structured,secure and professionally managed.
A substantial percentage of the current market is being fueled by foreign exchange. Willing investors or expats looking to buy a permanent holding or holiday home can expect to pay on average R 950 000 which adds up to about 53 000 Euro for a small home (80m²-140m²), R 2 million or 111 000 Euro fora medium – size home (141m²-220m²) and for really extravagant and special homes of between R 20 to R 50 million, this amounts to a mere 1.3 million Euros.
Investing in South Africa: According to the FNB House price index:
- 4.89% of SA homes are owned by foreign investors.
- The 1st quarter 2017 Foreign Home Buyer Confidence Index +0.09, from-0.016.
- In Euro terms, the FNB House Price Index rose by 24.3% year-on-year, in Dollar terms by 19.3%, and in UK Pound terms by 36.5% (The Brexit impact) year-on-year in February. Secondary home buying has risen to 14.47% by the 1st quarter of 2017.
- Buy-to-let homes remain the major driver of secondary home demand, accounting for 9.5% of total home buying in the first quarter.
- In the 1st quarter of 2017 holiday home buying was 3.77% of all sales.
- Buying a home for a family member or relative to live in, remains at around 1%.
- In total, secondary properties make up an estimated 16.24% as at January 2017.
Non-residents who are intending to stay in their SA property for long periods will need to comply with the Immigration Act, and may need to acquire a Visa.
Within the first week of arriving in South Africa, foreigners must apply for an extension on their 90 day temporary visa, from the new visa centres, as this will no longer be done through the Home Affairs offices.
Non-residents who are purchasing property in the name of a company or other legal entity rather than in their own names will first have to register that entity in SA and appoint a local public officer.
LEGAL CAPACITY TO ENTER INTO A SALE AGREEMENT
The buying and selling of property in South Africa is governed in terms of our common law. The transferring attorney's requirements to conclude the transfer are almost the same to that of a transfer to a South African resident, except that regardless of your foreign marriage regime, your spouse still has to sign all the documents pertaining to the purchase of the property.
MAKING AN OFFER WHILE OUTSIDE SOUTH AFRICA
Conveyancing documents must be signed before either a notary public of the country where the person lives, or at the South African Consulate or Embassy in such country. These documents will have to bear an apostille, which is a seal done by the notary confirming that you have signed in person.
COSTS TO BE AWARE OF
Transfer duty (tax) is payable by the buyer on all pre-owned properties in SA valued at more than R900 000. Newly-built properties acquired from developers, on the other hand, usually attract value-added tax (VAT) at 14% of value, included in the sale price.
If the buyer will be letting out the property while they are not in SA, they should be aware that they will need a non-residential South African bank account.
Non residents can open a local bank account to service installments on a home loan or perhaps to receive rental income from the property you bought.
Any deposit made into this account in SA will require the approval of the Reserve Bank, because non-residents are not allowed to generate any income in SA except for rentals and the interest on investments such as shares.
The following documentation will be required by the banks before they consider a non-resident for bond approval:
- A certified copy of the passport;
- 3 months overseas bank statements;
- 3 months payslips (6 months statements and payslips where the purchaser earns commission or is paid overtime).
You can open a special "non-resident" bank account with a South African Financial Institution and ensure that all funds expended for purposes of the property investment, go through that account. Once the financing details have been finalized, the transfer attorney can go ahead with getting the property registered in the new owner's name.
South African exchange control regulations determine the extent to which foreign buyers can borrow money locally to fund the purchase:
Non-resident purchaser who does not work in South Africa
Non-resident buyer will not be granted more than 50% of the purchase price to fund the purchase.
The balance must be paid in cash and this may be cash generated in South Africa, or off shore funding.
Non-resident purchaser who is on a temporary work permit in South Africa.
- May be granted more than 50% of the purchase price, but the loan amount will still depend on the bank's criteria.
- A condition of the loan will be that the buyer reduces the bond to less than 50% of the registered amount before they leave South Africa to go back abroad. Some institutions would possibly require a work permit of at least 4 years before they would consider a bond for more than 50% of the purchase price.
Money must come into the country via the Reserve Bank, after which a deal receipt showing the exchange rate is issued. While there might be a short-term gain by paying the seller directly from an overseas account at a discounted price, you will not be able to take money back out of the country when selling.
Money in a property transaction must go straight to an attorney or estate agent's trust account pertaining to the purchase of the property. This is so that there is proof that the money went towards the purchase of the property. Non-residents who decide to sell their property in SA can repatriate all funds invested plus any profit made on the sale, less Capital Gains Tax. Keeping detailed receipts of all improvements made to the property can be used to write off against any profit made when selling, resulting in paying a lower Capital Gains Tax amount.
The following documentation should be kept by the foreign purchaser to avoid any delays regarding the repatriation of funds from the sale of the property:
- Proof of the derivation of the purchasing funds, including statements on the foreign transferring account as well as the receiving conveyancer's bank statements.
- A copy of the original sale agreement.
- the deal receipt from the receiving bank
Upon the eventual sale of the property, application will be made for Exchange Control Approval for the repatriation of the funds, supported by the following documents in addition to the documents as set out above:
- Sale agreement (onward sale);
- Conveyancer's final statement of account reflecting calculation of the sale proceeds;
- Foreign bank account information;
- ID and proof of residence of non-resident.
TAX IMPLICATIONS AS A NON-RESIDENT
Non-residents who purchase property in South Africa are required to register as South African tax payers solely for the purposes of their capital gains tax obligation. Foreign buyers have to ensure that they have a South African tax number, and any entity buying or selling must also provide a South African tax number. This is not difficult to get and is easily accessed through either the parties' attorney, tax consultant or online.
At the moment, the highest rate of capital gains tax in South Africa for individuals is 18% of the capital profit. There is a withholding tax, where immovable property in South Africa is purchased by any person from a non-resident,that purchaser (through the conveyancing attorney) must withhold the required rate until clearance is received from the South African Revenue Service (SARS)from any amount to be paid to the seller or the seller's agent (tax directives for a lower rate or an exemption can be obtained for the withholding tax):
- 7.5% of the amount payable where the seller is a natural person;
- 10% of the amount payable where the seller is a company; or
- 15% of the amount payable where the seller is a trust
The above only pertains to properties that sold for more than R 2 Million. The full proceeds of sale, (less any capital gains tax obligation), can be taken out of the country.
Please download our overview of the transfer processes here.