| Real Estate |
| Basic Buying Guide |
| Disclaimer: The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. We accept no responsibility for any loss or damage which may arise from reliance on information contained in this article. |
| Non-Resident Restrictions |
| There are no restrictions on property ownership by non-residents, save for a prohibition on illegal aliens owning immovable property within South Africa. There are, however, procedures and requirements which must be complied with in certain circumstances, such as, the local registration of entities registered outside of South Africa where it purchases property in South Africa and the appointment of a South African resident public officer for a local company whose shares are owned by a non-resident. In the event of a non-resident purchasing property in the country with the intention of residing here for longer periods, permanent residency will have to be applied for in accordance with the given requirements and procedures of South African law. The decision to enter into and sign an Offer to Purchase/Agreement of Sale is not a decision to be taken lightly and it is recommended that an inexperienced purchaser obtain independent legal advice if uncertain in any respect. |
| Buying a property |
| All contracts to acquire land must be in writing, contain certain prescribed information and be signed by both buyer and seller to be valid and legally binding. Contracts most commonly take the form of an Agreement of Sale or Offer to Purchase which once accepted constitutes an Agreement of Sale. Once an Agreement of Sale has been signed by both parties it represents a valid and binding document from which neither party can withdraw without incurring legal consequences, save for a very few certain instances. Natural persons can also obtain the de facto ownership of property by means of acquiring the shares/members interest and loan claims in a company/close corporation being the registered owner of a property. Accordingly, if it is intended for a non-resident company or Trust to be the ultimate purchaser, provision can be made for the close corporation to be converted to a private company at a nominal expense to facilitate same and this should be a condition of purchase. |
| Financial Assistance |
| There are restrictions on loans to non-resident purchasers of property. In brief, the non-resident may only borrow up to a maximum of the amount invested by the non-resident into the purchase of the property, which translates into a 50% to value borrowing ratio. Such loans are, however, subject to foreign exchange approval by the SA Reserve Bank which approvals are efficiently handled by all South African Commercial Banks offering financial assistance. There are stringent restrictions and prohibitions imposed where the property is owned by a company and financial assistance is sought to finance the acquisition of shares and loan accounts in the property-owning company. We strongly recommend to obtain professional financial advice if uncertain in any respect. |
| Transfer Procedure |
| The registration of a property transaction is handled by a specially qualified legal practitioner known as a conveyancer. It is customary for the seller to appoint the conveyancer to attend to the registration of transfer of a property sold, whilst the costs attendant on same are for the account of the purchaser, unless contractually agreed to otherwise. The conveyancer prepares the requisite transfer documentation that, after signature by the purchaser and the seller, is lodged together with the cancellation of any existing mortgage bonds and new mortgage bonds to be registered in a regionally located Deeds Registry. The deeds are subject to an intense examination process where after they are made available for registration. |
| Registration of Transfer |
| On date of registration of transfer all existing mortgage bonds registered over the property are cancelled simultaneously with the registration of any new mortgage bonds by the purchaser in favour of the bank granting financial assistance. The purchaser is recorded as the new owner of the property and the purchase price is paid to the seller. The above procedure does not apply in an instance where the shares/members interest and loans are acquired in a property-owning company/close corporation where no change in ownership is recorded. It is 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 and not necessarily pass to the new owner, unless otherwise agreed to. |
| Costs |
| Brokerage is payable where an estate agent is responsible for concluding a sale of property. Brokerage is customarily payable by the seller who mandates the estate agent to procure a purchaser for the property. The purchaser is responsible for the payment of transfer costs and the costs of registering any new mortgage bonds over the property purchased. Transfer costs include transfer duty between 5% and 10%, payable to the Receiver of Revenue. Attorneys' fees for attending to the transfer and registration of mortgage bonds are calculated according to a tariff. Further sundry charges are imposed by the Deeds Registry and the Bank granting financial assistance, whilst the Receiver of Revenue requires stamp duty on all new mortgage bonds registered. |
| Signature of Documents |
| Documentation prepared by the conveyancer pertaining to the registration of transfer of the property and any mortgage bond to be registered over the property is required to be signed in black ink and must be authenticated if signed outside South Africa. This is sometimes inconvenient and it is possible, and often advisable, to leave a General Power of Attorney in favour of an entrusted person within South Africa to assist in this regard. Where the purchaser is married, which marriage is governed by the laws of a foreign country and a mortgage bond has been applied for, please note that the spouse of the purchaser will be required to assist the purchaser in signing the mortgage bond documentation. Marriages according to the laws of the England and Scotland are exceptions to the aforegoing rule. |
| Repatriation of Funds |
| All funds introduced from outside South Africa to acquire fixed property within South Africa may be repatriated together with any profit on resale of the property, provided, the title deed of the property has been endorsed "non-resident". Similarly, funds introduced to acquire shares in a company/members interest in a close corporation may be repatriated together with any profit on resale, provided, the relevant securities have been endorsed "non-resident". Funds, introduced into South Africa in the form of a foreign loan to fund acquisitions of corporate entities which own property in South Africa, may be repatriated in terms of the original loan approval by the Reserve Bank. The profit on resale may also be repatriated, provided, the relevant securities have been endorsed "non-resident". |
| Income Tax |
| South Africa follows a revenue-based income tax system meaning that income earned from a South African source will be subject to ordinary income tax. Accordingly, any rental earned by non-residents in respect of South African properties will be subject to income tax and it is the responsibility of the non- resident to register as a South African taxpayer. At the moment, income earned by natural persons below R30 000.00 per annum (for persons under the age of 65) and R47 222.00 (for persons above the age of 65) is exempt from income tax, whilst all income earned over and above the aforesaid amounts, will be taxed at a marginal rate applicable to that non-resident in accordance with published tax tables. |
