South Africa, with its breathtaking landscapes, vibrant cultures, and diverse opportunities, has long enticed global investors. The country’s real estate market mirrors its dynamic scenery offering a tantalizing prospect for global investors. However, for foreigners contemplating property ownership in South Africa, navigating the legal intricacies and financial landscapes can be both intriguing and daunting.
Indeed, foreign individuals- those who are not South African residents- can delve into South Africa’s property market, provided they adhere to the legal requirements outlined in the Immigration Act, the Foreign Investment Act, and other relevant legislation. Nevertheless, this doesn’t automatically grant unrestricted access into the country. For foreigners seeking property ownership and residency, possessing a valid passport, a permanent or temporary residence permit, or a visa is essential. Alternatively, one can purchase property as an investment and rent it out without residing in the country, as long as they adhere to the legal requirements of the Foreign Investment Act.
For foreign entities seeking to conduct business through property ownership, it must register as a foreign external company in accordance with the Companies Act 71 of 2008. Renting out the property in South Africa constitutes “conducting business”, requiring adherence to this rule. However, a foreign company not conducting business in South Africa can still own property in South Africa by lodging a confirmation certificate from their auditor.
Upon sealing the deal with an Agreement of Sale and securing the purchase price, foreign purchasers embark on the transfer process and will need to sign various transfer and mortgage bond documents (if applicable). While transfer documents can be conveniently exchanged via email, signing bond documents will need to be executed before a Notary Public or at a South African Embassy. Alternatively, they may grant a Power of Attorney to an agent in South Africa to sign on their behalf.
Financing the property acquisition can be accomplished through cash payments from either a South African or an offshore bank account, or via a mortgage bond application. It’s important to note that obtaining a mortgage for a South African property through a foreign bank is not feasible. However, alternative options such as private bonds with foreign companies have been explored. When transferring funds from a foreign source to a South African bank account, a record known as a deal receipt or a SWIFT confirmation is maintained by the South African bank. This record is crucial for future repatriation of funds, when the property is sold.
For properties purchased for a price above R1,200,000.00 (one million two hundred thousand Rand), the foreign purchaser is liable to pay Transfer Duty to the South African Revenue Services. This is alongside covering transferring attorney costs and mortgage bond registration fees (if applicable), which are calculated based on the property’s purchase price. Transfer costs are applicable to all transactions, regardless of their value.
Furthermore, if the property is intended for rental while the owner resides abroad, it is necessary to establish a non-resident South African bank account to receive rental income. Additionally, non-residents are subject to taxation of rental income and are liable for capital gains tax (CGT) upon the sale of the property. Foreigners should also be mindful of potential withholding tax upon the sale of their property in South Africa, typically calculated at 7.5% for individuals and 10% for companies.
For foreigners embarking on the South African property journey, enlisting the expertise of reputable conveyancing attorneys is indispensable. Our knowledgeable team stands ready to provide comprehensive guidance and assistance.