A HOME AWAY FROM HOME – What non-residents should know before buying property in South Africa

With its picturesque coastlines, majestic mountain valleys, beautiful nature reserves and rich cultural heritage, it is no surprise that many non-residents are eager to own real estate in South Africa. Whilst owning fixed property in South Africa presents an attractive investment opportunity, it is important for foreign investors to understand the legal framework, processes, and financial regulations applicable to property ownership in South Africa.

The Legal Framework
The South African Constitution enshrines the right to own property, a right that is protected by a comprehensive framework of laws and regulations. Moreover, South Africa is world renowned for having one of the best land registration systems, providing accuracy, transparency, legal certainty, and security of land ownership.

Property ownership is formally recorded in one of the country’s 11 deeds offices, following a strict legal transfer process overseen by specialised property attorneys known as conveyancers. Once a property is registered in the deeds office, the buyer receives a title deed, which serves as proof of ownership.

While there are proposed restrictions on certain types of ownership, such as agricultural land, and foreign entities who may have to register as external companies in South Africa, non-residents are generally free to buy and own property under the same conditions as South African citizens. However, foreign buyers must be aware that owning property in South Africa does not automatically confer residency rights. Those intending to reside in South Africa on a long-term basis must apply for a residence permit.

The Registration Process

Home ownership begins with finding a suitable property and then making of an offer to purchase. Once the buyer and seller agree on a price, a formal Offer to Purchase setting out the conditions of the sale is prepared, usually by the real estate agent. Under South African law, an agreement relating to the alienation of land must be in writing and signed in “wet” ink (electronic signatures are not permitted). Tip: It is advisable to consult an experienced conveyancer to review the terms of the agreement. Once signed, it becomes a binding contract. Upon acceptance of the offer, the seller appoints a conveyancer to handle the legal aspects of the property transfer. In some instances, the seller may be amenable to using a reputable conveyancer of the buyer’s choice. The conveyancer prepares all required documents and submits them to the deeds office. The conveyancer will also perform a deeds office property search and peruse the existing title conditions to check for any adverse restrictions which may affect the property. The buyer is responsible for payment of the conveyancer’s fees, deeds office fees and other disbursements, including Transfer Duty. Transfer Duty is a form of tax payable to the South African Revenue Services (SARS), calculated on the purchase price or the value of the property, whichever is the highest. Tip: Use our handy cost calculator to calculate the estimated costs and transfer duty here. If the seller is a developer, Transfer Duty may not be applicable since the developer will likely be a Value Added Tax (VAT) vendor, in which case the purchase price will typically include VAT. Once lodged at the deeds office, documents undergo a meticulous examination process. Upon completion and if in order, the deeds are executed by the registrar of deeds, at which point the buyer officially becomes the owner of the property. Depending on the circumstances of the transaction, the process can take between 6 to 12 weeks from the time of signing the Offer to Purchase.

Bringing Money into South Africa and Repatriation of Funds
Foreign buyers are subject to South Africa’s exchange control regulations when bringing money into the country and when repatriating funds from the sale of the property. Any funds introduced into South Africa for the purpose of purchasing property must be declared to the South African Reserve Bank (SARB). The funds must be transferred through an authorised dealer (such as a local commercial bank), who will report the inflow of funds to the SARB. This process ensures that the buyer can repatriate the proceeds from the sale of the property in the future. The buyer will need to produce the original deal receipt to prove that the funds were introduced legally. It is important to engage with a reputable bank or mortgage broker familiar with the regulations concerning foreign buyers.

Mortgage Loan Finance
South African financial institutions generally allow foreign nationals to borrow up to 50% of the property’s purchase price against registration of a mortgage bond over the property. The remaining 50% must be funded from the buyer’s own resources. The loan application is similar to the process for local buyers, though foreign applicants may be subject to additional requirements or scrutiny.

Taxes
Rental income from a South African property which accrues to a non-resident owner is subject to standard tax in South Africa. Property-related expenses such as insurance premiums, rates and taxes, and repairs may generally be set-off against the rental income. Additionally, upon the future sale of the property, a non-resident may be liable for payment of Capital Gains Tax. That said, South Africa is a party to Double Taxation Agreements with various countries which could offer relief or exemptions from paying taxes in South Africa. Tax systems vary from country to country, and it is advisable to consult a tax advisor on the tax implications in both South Africa and the buyer’s home country before making a purchase.

The South African Income Tax Act mandates a withholding tax on property sales where the seller is a non-resident and the value of the property being sold exceeds R2 million. It requires the buyer, usually through the conveyancer, to withhold 7.5% of the purchase price where the seller is a natural person, 10% if the seller is a company and 15% if the seller is a trust, as provisional payment of a potential tax liability. Alternatively, the seller may apply for a tax directive in respect of the withholding provisions which could result in an exemption, or determination of a reduced amount to be withheld. When an amount is withheld from a non-resident seller, the non-resident is expected to file a tax return.

Be Wary of Potential Pitfalls
Unfortunately, due to large sums of money associated with property transactions, the real estate sector has become a prime target for cybercriminals and other fraudsters. One prevalent scam involves phishing attacks, where hackers impersonate conveyancers or real estate agents, intercepting and manipulating emails to divert funds into fraudulent accounts. Additionally, buyers should be wary of deals that seem too good to be true as these may be indicative of a scam. To mitigate these risks, foreign buyers are advised to make sure that they work exclusively with reputable real estate agents and conveyancing attorneys and where possible, to communicate with these professionals directly and through secure channels, particularly when verifying bank details or sharing personal information.

Additionally, it is advisable to seek legal advice to ensure that the property’s title is clear of detrimental conditions, land claims or disputes and that the property is properly zoned for its intended use. By staying vigilant and enlisting professional assistance to conduct a proper due diligence, foreign buyers can protect themselves from falling prey to property scams and avoid costly mistakes.

With a wealth of experience and a reputation of being industry leaders, the Real Estate and Property Law team at Adams & Adams can provide trusted, reliable guidance through every stage of acquiring property in South Africa. By partnering with us, you can become the proud owner of your home away from home with confidence and complete peace of mind.