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Foreigner's guide to buying property in South Africa

01 Jun 2016

The immensely low value of the rand compared to most major foreign currencies is making residential property in South Africa an increasingly attractive investment option, with the appeal further driven by the fact that South Africa is home to several internationally acclaimed and award-winning destinations.

“Non-residents are subject to the same well-established laws and regulations as South Africans when buying property, and they are assured of guidance throughout the process as estate agents are involved from the get-go - from property selection through to the conclusion of the Deed of Sale,” says Hopkins.

This is according to Lew Geffen, Chairman of Lew Geffen Sotheby’s International realty, who says residential property, especially in the Western Cape, is a very attractive investment proposition because of the value factor and location,

“However, we continually field queries from foreign buyers concerned about the legal aspects of purchasing property - and how easy it’ll be for them to visit their local homes once they have them,” says Geffen.

“It’s a relatively simple process, and if you’re working with reputable, professional realtors, any obstacles encountered are easy enough to navigate with the assistance of their legal partners.”

How to find your South African home

Elana Hopkins, Specialist Conveyancing Attorney with Dykes Van Heerden Inc, says South Africa has one of the best Deeds Registry systems in the world, offering certainty and security in respect of property ownership and tenure. 

“Non-residents are subject to the same well-established laws and regulations as South Africans when buying property, and they are assured of guidance throughout the process as estate agents are involved from the get-go - from property selection through to the conclusion of the Deed of Sale,” she says.

According to Hopkins, the procedure is relatively straightforward, but she says it is essential to work through a reputable real estate company - and with an experienced and accredited agent - to avoid potential pitfalls.

“Once you have decided on a property, the agent will prepare an offer to purchase, which is open to acceptance by the seller for an agreed-upon period of time during which the offer is irrevocable and, once accepted by the seller, it becomes a binding contract,” she says.

Additional costs

Hopkins says South Africa has one of the best Deeds Registry systems in the world, offering certainty and security in respect of property ownership and tenure.

Hopkins says buyers have to remember to take additional costs into account when determining their budgets so that the pleasure of purchase is not marred by hefty additional payments due after they have signed on the dotted line.

The most costly expenses are the various taxes which property owners in South Africa must pay:

- The transfer duty, which is calculated according to the purchase price, is paid by the buyer prior to the registration.

- Property rates and taxes are payable annually or monthly, and calculated on the municipal value of the property. A portion has to be paid in advance so that rates a clearance certificate can be obtained for the registration.

Capital Gains Tax, calculated on the profit, is due once the property is sold. For a natural person, the rate is between 0% and 16.4% of the capital gain.

- The conveyancer is liable to pay withholding tax of 5% on 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.

Money matters

“Due to our high interest rates, most foreign investors who require finance will do so abroad, but non-residents can apply for a home loan from a South African financial institution,” says Hopkins. 

“However, due to the Reserve Bank’s 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.”

Hopkins says it’s essential that buyers retain the source document as proof of the transference of the cash portion from abroad as they will 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 country,” she says.

“It is also advisable that foreign purchasers open a local bank account to deal with any funds earned from their properties and regular payments required to deal with the property before leaving the country.”

Visa requirements for enjoying your South African home

Whilst foreign investors can purchase property over the internet from the comfort of their homes abroad with relative ease, they need to ensure that they obtain the correct visa to enable them to spend time in their new acquisition.

Whilst foreign investors can purchase property over the internet from the comfort of their homes abroad with relative ease, they need to ensure that they obtain the correct visa to enable them to spend time in their new acquisition.

Stefanie de Saude, South African Immigration and Nationality Law Specialist and Director of De Saude Attorneys Inc, says the permit 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 is a fairly long list of countries whose citizens are exempt from visas to visit South Africa for a stay of 90 days or less, which is ideal for investment buyers who plan to come out for their annual holidays or regular short visits,” says De Saude.

“Foreign buyers from a visa restricted country will have to apply for a visa from the South African representative in that country or their place of long-term residence."

Although a short-term visa application is usually relatively simple and quick, she says it can prove to be complicated with certain missions, so if the buyer is planning on making regular short trips, it is advisable 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 is especially popular with wealthy UK citizens who now account for the largest foreign share of this market.

According to De Saude, 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.

“Applicants for both temporary and permanent residence permits based on retirement must be able to offer proof of an income of at least R37 000 a month, although it’s also acceptable at various missions for temporary permit applicants to prove that they have at least R1.776 million in an account anywhere in the world,” says De Saude.

“Financially independent retirees may apply for permanent residence on the basis of net worth if they can demonstrate a net worth of at least R12 million and, upon approval, an amount of R120 000 is payable to the Department of Home Affairs before the permit is issued to the applicant.”

De Saude says foreign buyers who will experience the most difficulty are families with no ties to South Africa, who want to relocate permanently.

“Unless the applicants are independently wealthy, their success will depend upon the skills and qualifications they offer, and whether or not there is scarcity of people with their field of expertise in South Africa.”

Foreigners flock to the Mother City

“Cape Town’s Deeds Office records clearly demonstrate the city’s continued appeal,” says Geffen.

“Especially in areas like the Atlantic Seaboard where records reveal that between 2010 and 2015, foreign investment in Bantry Bay, Camps Bay, Clifton and Fresnaye accounted for 17% of all residential sales and 22% of the total rand value achieved during this period.”

He says investors from Europe and the UK grabbed the lion’s share of this market at 42% and 36% respectively, but in many parts of Cape Town, he says it’s encouraging to see increased interest from buyers from other African countries.”

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