A Handy Guide for Foreign Buyers Investing in South African Property

Natural beauty, diverse landscapes, outdoor lifestyle, and the favourable rate of exchange make it an appealing choice for foreign buyers to invest in property in South Africa.

Out of concern for the diminution of residential property available to its citizens, some countries have either placed bans on foreigners investing in local property, including Canada and New Zealand or have imposed stringent restrictions and severe penalties for foreigners who violate residential property investment laws.

South Africa, on the other hand, encourages foreign investment and as property development is on an upward surge, there is no shortage of property and no restrictions on category or quantity available for investment.

To gain a better insight into what is required when purchasing a property in South Africa, it is advisable to solicit guidance from a reputable real estate agent – request a copy of the Fidelity Fund Certificate (FFC) if necessary, and an experienced attorney who will ensure that all legal requirements are met when handling property transactions for foreign investors.

Visa requirements

Depending on the country of origin, there are a significant number of listed countries that do not require visas for visits of less than 90 days; foreign nationals from visa-restricted countries will need to apply for the relevant visa.

When applying for a visa, non-residents must have a valid passport, a permanent residence permit, any valid visa, or an endorsement in their passport permitting them to live in South Africa.

Should the applicant not be in possession of a permanent residence permit, a temporary residence permit, visa, or a waiver must be obtained from the Department of Home Affairs which will allow the investor to apply for a visa, without submitting the necessary documentation required.

Financing

Non-resident loans are subject to foreign exchange approval from the South African Reserve Bank and to meet their Exchange Control requirements, an upfront 50% deposit of the purchase value of the property must originate from foreign funds transferred to South Africa by the non-resident. Proof of the deposit secured into the attorney’s account is required in the form of a bank statement and must accompany the application to Exchange Control.

The attorney will then provide a confirmation letter declaring the amount and purpose of the funds retained in their account, payee account details, as well as a description of the property being purchased.

Leading South African banks such as Absa, Nedbank Bank and First National Bank (FNB) have customised products and finance solutions on offer to non-residents looking to invest in property in the country.

Related and additional expenses

In South Africa, there are additional costs that a property purchase incurs including transfer duties, bond registration costs and conveyancing fees.

As with South African residents, non-residents are responsible for any transfer duty, should the value of the property exceed R1,000,000 (one million Rand). The rate payable is determined by the value of the property purchased and must be paid within six months of the purchase date. In the event of late payment, interest is calculated at an annual rate of 10% for each month the bill remains unpaid.

Depending on the type of property, monthly expenses may also include utilities (water and electricity), rates and levies and an allowance for any maintenance and repairs that may be required over time.

In South Africa, household insurance is a necessity. If the property is unoccupied for any length of time, the monthly premiums may be higher to cover any associated risks. Carefully check all the terms and conditions of your policy to ensure that all the stipulated security-related requirements are met.

Tax Implications

As defined by the South African Revenue Services, “a non-resident is liable to Capital Gains Tax (CGT) only on immovable property in South Africa or assets of a “permanent establishment” (branch) in South Africa. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property.”

Should a non-resident decide to sell their property, a withholding tax of a certain percentage on the proceeds of the sale of a property becomes payable until clearance is received from SARS from any amount to be paid to the seller, or their agent. This tax currently only applies to properties that are sold over and above two million Rand.

In Closing

On average, the process of purchasing a property in South Africa may take from three to six months, depending on the alacrity of visa approval, finance accessibility and the complexity of the purchase agreement. 

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