Buying South African real estate
Buying South African real estate. As a resident or non-resident. South Africa follows a unique registration system. Every piece of land reflects on a diagram. Ownership records appear in regional Deeds Registries where documents are available for public viewing. South African real estate registration system claims to be one of the best worldwide. An exceptional degree of accuracy and security of tenure guaranteed. Property ownership allowable to be individual, partnership, undivided shares, company, close corporation. A trust or a similar entity registered outside South Africa.
Buying South African real estate or selling in the wild African bush can be stressful. Should you need a reliable real estate agent you can trust to take some of the burden off your shoulders. Call or e-mail Julian: +27 (0)83 400 8490 | email@example.com
Information courtesy of: STBB – SMITH TABATA BUCHANAN BOYES (Updated: 2015 / 2016 fiscal years)
Buying South African real estate – Non-residents
There are no restrictions in respect of property ownership by non-residents. Save for a prohibition on illegal aliens owning immovable property within South Africa. There are, certain, procedures and requirements when buying South African real estate. Registration of entities registered outside of South Africa. Where they buy property in South Africa. The appointment of a South African resident public officer for a local company. Should a non-resident own the shares. A non-resident buying property in the country to live for a longer period will need a resident permit. Application for such a permit together with the relevant requirements are to apply.
Buying South African real estate
All contracts to buy land must be in writing, contain certain prescribed information. Signed by both buyer and seller to be valid as required by law to be binding. Buying South African real estate, contracts, most take the form of an Agreement of Sale. Once accepted, forms an Agreement of Sale.
Once an Agreement of Sale is signed by both parties it represents a valid and binding contract. Neither party can withdraw without incurring legal consequences, save in certain instances where:
- the agreement is subject to certain conditions which are not fulfilled;
- the sales price is less than R250 000.00. Certain extra criteria for the Alienation of Land Act are present. Entitling the Purchaser to “cool off” and cancel the sale.
The de facto ownership of property. Property take over by means of acquiring the shares/members interest. Together with loan claims in a company/close corporation that owns a property. These contracts, need not be in writing and can be verbal. Although legal binding, this is not advisable. A written sales agreement will ensure verbal terms agreed upon are recorded.
The registration of a property transaction is as a norm handled by a qualified a practitioner. Known in the industry as a conveyancer. It is customary for the seller to appoint the conveyancer. The costs attendant thereon are for the account of the purchaser. Unless agreed to otherwise. When buying South African real estate, the conveyancer prepares the requisite transfer documentation. After signature by the purchaser and the seller. The conveyancer is in receipt of various clearances as required by government departments. The transfer of the property is then lodged for registration in a regional Deeds Office. Together with cancellation of any existing mortgage bonds. Plus new mortgage bonds in need of registration.
The deeds are subject to a stringent examination process. Whereafter they become available for registration. On registration of transfer date, existing mortgage bonds registered over the property are cancelled. At the same time any new mortgage bonds by the purchaser in favour of a third party registered. The purchaser becomes the new owner of the property and the sales price paid to the seller.
The above procedure does not apply to the following. Where the shares/member’s interest and or loans acquired in a property-owning company/close corporation. As there is no change in ownership in the Deeds Registry.
Important to note, that upon transfer to the new owner. Any liabilities in respect of the property incurred by the previous owner. Remain with the previous owner. They do not pass to the new owner, unless otherwise agreed to. In the case of certain historic municipal rates and taxes debts that attaches to the land. If the sale agreement relates to the sale of shares/members interest. The company or close corporation. The entity will remain liable for settling the liabilities it incurred.
- Brokerage is payable where an estate agent handles the sale of immovable property. Brokerage is payable by the seller to the estate agent whom secures a purchaser for the property.
- The seller is usually also responsible for the cost of procuring compliance certificates. These are beetle free, electrical, gas, plumbing and electric fence compliance certificates where necessary.
- The seller is liable for the costs relating to a cancellation of the existing bond over the property.
- Conveyancing Fees
Buying South African real estate, the purchaser is liable for payment of transfer costs. Also the costs of registering any new mortgage bonds over the property purchased. These are often referred to as the ‘conveyancing fees’. The conveyancing fees are related to the sales price of the property. Determined tariff guidelines are issued by the Law Society.
- Conveyancing fees further include:
- Transfer duty is payable to the Receiver of Revenue. Calculated on the following formula, based on the sales price:
- For properties with a sales price of up to R750 000, no transfer duty is payable.
- From R750 001 to R1 250 000, transfer duty calculated at 3% on the value above R750 000. (You don’t pay transfer duty on the rest R750 000, only on the part that exceeds this amount.)
- From R1 250 001 to R1 750 000, transfer duty calculated at 6% on the value above R1 250 000 Plus at a rate of R15 000.
- From R1 750 001 to R2 250 000, transfer duty calculated at 8% on the value above R1 750 000 Plus at a rate of R45 000.
- From R2 250 001 to R10 000 000, transfer duty calculated at 11% on the value above R2 250 000 Plus at a rate of R85 000.
- From R10 000 000 upwards, transfer duty calculated at 13% on the value above R10 000 000 Plus at a rate of R937 500.
Transfer duty is payable on the acquisition of property. Whether by an individual or entity. Note the exception: no transfer duty is payable if VAT is payable. VAT is payable in a transaction if the seller is a registered VAT vendor. Should the property sold form part of the seller’s business.
- sundry charges are liable to the Deeds Registry and the Bank granting financial help;
- deeds office levies;
- pro-rata rates and taxes; and
- expenses for obtaining rates/levy clearance certificates.
Signature of Documents
When buying South African real estate. Documentation prepared by the conveyancer of registration of transfer of the property. As well as any future mortgage bond registered over the property, must be signed in black ink. Documents if signed outside South Africa verified. This is sometimes inconvenient. If possible, to leave a General Power of Attorney (GPA) in favour of a trusted person in South Africa. It is important to note that no person may sign an affidavit on someone else’s behalf, even if a GPA is granted. A purchaser married according to the laws of a foreign country and a mortgage bond granted. On the re-sale of the property. The spouse of the purchaser will assist signing mortgage bond documentation or transfer documents.
The offer to Purchase / Agreement of Sale
When buying South African real estate, the Offer to Purchase/Agreement of Sale will typically contain the following standard provisions:
When buying South African real estate, a deposit is not mandatory. It does serves as a gesture of good faith on the part of the purchaser and a sign of financial ability. The deposit is invested by the estate agent/conveyancer in an interest-bearing trust account. Interest accruing for the benefit of the purchaser. Both attorneys and estate agents are insured by Fidelity Funds. This messure guards against the risk of theft or negligence on the side of the agent or attorney.
Provision in the Agreement calls for a guarantee in respect of the balance of the sales price. A guarantee will only be acceptable if issued by a local financial institution. Funds will actually be sent to South Africa, in order for a local bank to issue such a guarantee. Or, arrangements between a foreign and local bank for a back to back guarantee issued. It is possible to negotiate the issue of a Standby Letter of Credit, from an overseas institution.
OCCUPATION, POSSESSION, TRANSFER AND OCCUPATIONAL INTEREST
Occupation is the physical occupation of the property. Possession is generally deemed to be the date upon, which the purchaser assumes responsibility. It is customary for possession to pass on the date of registration of transfer. Transfer refers to the actual date of registration of ownership in the Deeds Registry.
Occupational interest is the rental payable for occupying the property belonging to another. Where the date of occupation and date of transfer differs. Expressed in Rand terms or as a percentage of the outstanding balance of the sales price.
This is a standard inclusion in all deeds of sales. Property is bought ‘as is’, in the ‘exact’ condition when viewing the property. The Consumer Protection Act applies to sale agreements. Where the seller is in the business of selling land, such as a developer. In this instance the seller has to provide the buyer, with a property that is free from defects as defined in the Act.
ELECTRICAL AND BEETLE-FREE CERTIFICATES
When buying South African real estate. The property owner by law is to be in possession of a valid electrical compliance certificate. This certificate certifies that the electrical installation meets certain statutory safety re-quirements. The beetle-free certificate certifies accessible parts are free of infestation by certain defined beetle. As a standard inclusion in most Agreement of Sale, it is not a legal rule. Nor is it included in sales of sectional title units. Beetle-free certificates only apply to property in the Western Cape and Kwa-Zulu-Natal provinces. The cost of attending to the aforesaid certificates is for the account of the seller. Although the parties can agree otherwise.
Gas, Solar and lighting Conductor Certificate of Compliance
If there is a Gas appliance is installed in the property. A certificate is applicable confirming all statutory safety requirements are in place. If there is a Solar appliance installed in the property. A certificate is applicable confirming all statutory safety requirements are in place. If there is a Lightning Conductor installed in the property. A certificate is applicable confirming all statutory safety requirements are in place.
Fixtures and Fittings
Generally fixtures and fittings include anything attached to the property. Or by its considerable mass accedes to the property. The purchaser is to ensure that all items included in the sales price. Be specified in writing in the Agreement of Sale.
Agreements for acquisition of shares/member’s interest and loan accounts in property-owning companies/close corporations. Contain many of the clauses discussed above. Such agreements are different from property sales agreements. They include many warranties and indemnities that the seller gives to the purchaser. As the latter is acquiring the property-owning entity together with its financial history.
Capital Gains Tax
South African residents are liable for the payment of Capital Gains Tax. (“CGT”) on the disposal of any capital asset. Subject to certain limited exceptions. Non-residents, are only liable to pay CGT on the disposal of the following:
- Immovable property situated in South Africa, including any right or interest in immovable property. (This also includes an interest of at least 20% in a company). Where 80% or more of the value of the net assets of the company is attributable. Direct or Indirect, to immovable property in South Africa.
- Assets of a permanent establishment of a non-resident, through trade in South Africa. CGT is payable in the year of disposal. The current rates, as at March 2015, are the following:
Seller is a Natural Person
- 33,3% of the gain made on the sale of immovable property must reflect in the annual income of the taxpayer. The latter is then taxed at the rate that applies to the taxpayer’s particular level of annual income. The greatest rate at which individuals are taxed is 41%. This makes the highest effective rate of CGT for individuals 13,65% (41% x 33,3% = 13,65%). There is a yearly rebate of R 30 000 for natural persons.
Seller is a Company
- 66,6% of the gain made on the sale of immovable property by a company. Must reflect in the annual income of that company. Company’s income tax is 28%. Thus the effective CGT rate for a company is 18,65% (66,6% x 28% = 18,65%).
Seller is a Trust
- 66,6% of the gain made on the sale of immovable property by a trust must reflect in the annual income of that trust. A trust’s income tax is 41%. Thus the highest effective CGT rate for a trust is now 27,31% (66,6% x 41% = 27,31%). Capital gain is calculated and disclosed in the individual’s income tax return. For the year in which a property was sold. Thus, if a non-resident disposes of immovable property in any year of assessment. And is not already registered as a South African taxpayer, he or she will have to register as such. And submit an income tax return reflecting the calculation of the capital gain. And will be liable for the payment of CGT on that gain.
An obligation relating to the withholding of a percentage of the sale proceeds. From non-resident sellers introduced into our tax laws in 2007. When buying South African real estate the provision requires that. Where a non-resident sells a property for more than R2 million. Provisional CGT is payable to SARS in an amount of :
- 5% in the event of a natural non-resident seller,
- 7.5% in the event of a foreign company; and
- 10% in the event of a foreign trust, unless a specific CGT directive advocated.
Are there any restrictions on non-residents buying property in South Africa?
The answer to this is a resounding NO, save for a prohibition on illegal aliens owning immovable property in South Africa. Non-residents will of course be subject to the same laws and regulations as South Africans and it is compliance with these stringent requirements that ensures the efficiency of the South African land registration system and security of tenure.
Should the non-resident when buying real estate, not wish to purchase the property in his or her own name but rather in the name of an entity, such entity must be locally registered and meet the requirements inherent in registration of the chosen entity, such as the requirements of the Companies Act.
For example, a non-resident may decide to own the property through share ownership in a company or as a beneficiary in a trust. In the event of a non-resident acquiring property in the name of an entity, funds brought into the country will represent a loan to the local entity and will require Exchange Control approval.
For the most part however, property is registered in the name of the purchaser as an individual. There may be specific reasons for taking transfer in the name of an entity. For further advice, contact conveyancing attorneys STBB Smith Tabata Buchanan Boyes, firstname.lastname@example.org.
Note that when buying real estate the purchasers will have to finalise their choice of entity. Before buying the property and signing any agreement of Sale. As no changes are allowed at a later date, without the possibility of penalties. Causing resultant delays in the transaction.
It is possible to sign an agreement as nominee for another, but the nomination. Of the alternative purchaser must then occure. Before midnight on the date of signature of the agreement.
Finally, a non-resident can buy South African property over the internet. Without entering the country! But, should the prospective purchaser intend residing in the property. For any length of time, he or she will need to follow the requirements of the Immigration Act. Have a valid permit to remain in the country or be in possession of a permanent residency permit.
How can foreign funds be brought into SA for a property acquisition?
Foreign funds paid into any nominated bank account in South Africa is acceptable. This account will usually be a trust account into which the deposit for the balance of the sales price. These funds will be for the non-resident’s benefit. The non-resident can rest assured that such a deposit is secure and guaranteed. A deposit paid into an attorney’s trust account, requires the following. Signing a form directing the attorney to invest the money. Requesting interest to gain to the client. Failing such an instruction, interest earned will be for gain to the Law Society. When a non-resident transfers funds into a South African bank account. A record known as a “deal receipt” of the foreign funds received by the South African bank. This is an important document kept for the purposes of repatriation of the funds.
Can money be borrowed in SA to purchase property?
The South African Reserve Bank will adjudge all foreigners not having their domicile in South Africa as non-residents. This however does not include foreigners with South African work permits who will be considered to be residents for the duration of their work permit.
When buying real estate. Non-residents borrowing ratio in South Africa is. An amount equal to the amount brought in from a foreign bank. If a purchaser brings enough money into South Africa. To cover the costs and transfer duty of the transaction together with 50% of the sales price. He will be able to borrow an amount that is more than 50% of the sales price. To qualify for a South African mortgage bond. The non-resident will need to provide proof of earnings. and meet specified standards of the Financial Intelligence Centre Act. This Act, in simple terms, requires identification of the non-resident. For money laundering purposes. It also involves documents such as a passport and proof of residential address.
Can a non-resident open a bank account at a South Africa banking institution?
In order for a non-resident to service repayments on a mortgage bond. He or she will need to open a non-resident banking account. Which they can only do from within the country. Again, certain documentation relating to the applicant’s identity will needed. That is, an application form detailing name, passport number and address. Certified copies of the relevant pages of the passport. Proof of source of income, such as a salary slip or pension statement. All signed copies must be copies of the originals. Once the bank account is operational, funds must immediately be credited to the account.
In certain circumstances when buying South African real estate. Local currency deposits paid into the account is acceptable. For example, rental income acquired from property belonging to the non-resident. This is dependent on the bank being in possession of a certified copy of the rental agreement. This type of deposit together with any other South African deposits. Into the non-resident account will rneed the Reserve Bank’s approval. Non-residents are not entitled to generate income in South Africa. Other than interest/rental generated from the foreign funded capital asset. The Rand value received on the sale of immovable property in South Africa. Can be credited into the non-resident account. Provided the necessary permission documentation approval is given, before crediting the account.
Who chooses which attorneys will attend to the transfer and whose intersts are the attorneys protecting?
It is customary when buying South African real estate for the seller of immovable property, to nominate the attorneys who will attend to the transfer. Such attorneys then act for the seller and on his or her instructions. Consequently, in the event of a dispute between the seller and purchaser, when buying real estate, the purchaser would have to seek independent legal advice. Note that whilst the seller selects the attorneys, the purchaser pays the transfer costs. Can transfer and bond documents be signed overseas and is so, what is the procedure?
Can transfer and bond documents be signed in an overseas country and if so, what is the procedure? yes, but there are certain formalities that need to follow certain rules. Endorsments of documents signed before a Public Notary in certain countries. Or at the South African Embassy in that country. This can unfortunately turn out to be costly and time consuming.
If a seller or purchaser is in South Africa at the time of Buying South African real estate. But returning overseas shortly thereafter. It is advisable to sign a special or general power of attorney in favour of a local friend or family member. Who will then be able to act on his or her behalf. When buying real estate. It is important to note that your authorised representative. May not sign affidavits on your behalf.
On sale of the property, can the money be taken out of the country?
The number one concern of non-residents considering investing in South Africa. When selling property with any profit. Could I repatriate these funds back to my country? The answer to this question is, yes.
Money from a foreign source together with any profit, proportionate to that non-resident’s shareholding. Could repatriate in due course with SA Exchange Control Regulations. If the non-resident owns property together with an SA resident. Only his part may repatriate to the amount proven, to have emanated from a foreign source. Plus the profit on that part.
On transfer of the property to the non-resident purchaser. All deal receipts, a copy of the agreement of sale. Together with the conveyancer’s final statement of all costs. He/she must keep all the expenditure costs for the duration of his ownership. and will have to present it to the Reserve Bank on sale, when the proceeds are due for repatriate back abroad. This facilitates the repatriation of the funds and profit on sale of the property. Provided the bankers agree that such profit is reasonable and market related.
Is a non-resident liable for payment of any South African income tax?
Whilst South Africans pay tax on their worldwide income. non-residents are liable for income tax only on income from a South African source. For example, the property rented out, then rental income will be subject to income tax. Also, a non-resident is liable for payment of capital gains tax on the disposal of a property.
Finally, when buying South African real estate, it is important to note. That a non-resident who has not immigrated to South Africa. Will become a resident for income tax purpose. If he or she spends more than a certain length of time within the country. Known as the “physical presence test” and calculated for days spent in the country. Over a three year period. Note:- No tax levied on foreign pensions.
What about estate duty in the event of death?
When Buying South African real estate. Estate duty at this point calculated at 20% of the dutiable amount of an estate. But any inheritance bequeathed to a surviving spouse is not subject to estate duty. Non-Residents, have a rebate of R3.5 million on their dutiable assets. but this rebate is only applicable to assets situated in South Africa.