Investing in South Africa as a foreign buyer or non-resident
South Africa has historically been an attractive property buying destination for foreigners (also referred to as non-residents), and favourable exchange rates offer great value in South Africa. With any investment, particularly in property, the experience can be as daunting as it is exciting. Knowing what you are getting yourself into will make all the difference.
If you are considering a property investment in South Africa, it is then a welcoming thought that foreigners may purchase and own immovable property in South Africa without any restrictions, as foreigners are generally subject to the same laws as South African nationals. We have put together a short “what should I know” list of topics, based on the most frequently asked questions we encounter around any property investment, with a special focus on our non-resident client(s). Here you go:
1. Visa Requirements
It is important to note that generally no visa requirement will preclude you from purchasing property in South Africa. However, and if you wish to stay a little longer and enjoy your investment, then you will need to comply with the Immigration Act and will have to apply for an extension on your 90-day visa from the new visa centres, as this will no longer be done through the Home Affairs offices. Although there is a lengthy list of countries who do not need visas for visits of less than 90 days, foreign nationals from visa-restricted countries will have to apply for the relevant visa. These centres are managed by international outsourcing and technology services specialist VFS Global, in order to streamline services for foreign nationals applying for visa extensions or changes. A link to their website and online application can be found hereunder in the links.
2. Financing Property
Loan From A Bank (Called A Mortgage Loan)
South African exchange control regulations determine the extent to which foreign buyers can borrow money locally to fund the purchase. These exchange control regulations create certain restrictions on non-residents wishing to purchase property in South Africa and determines that a foreigner may only borrow as much as they bring into the country. This means that for every ZAR 1 (One Rand) borrowed, you will also have to introduce ZAR 1 (One Rand) into South Africa. In basic terms, as a foreigner you can only obtain a loan of up to 50% of the purchase price. For example, if the purchase price is ZAR 1 000 000-00, you may be able to borrow up to ZAR 500 000-00 and the balance will need to paid into South Africa from a foreign source.
Any cash / balance purchase price introduced to South Africa must be transferred via the South African Reserve Bank, from their own foreign bank to a South African bank account.
Any non-resident mortgage loan is however subject to foreign exchange approval from the South African Reserve bank.
Any foreign money introduced to South Africa must be done via the South African Reserve Bank, after which a deal receipt showing the exchange rate will be issued. This deal receipt acts as a record of the foreign funds received by the South African bank. This is an important document which must be retained for purposes of repatriation of the funds. Any foreign funds / capital may be paid into any nominated bank account in South Africa, and it is customary that this account will usually be the trust account of the estate agent or transferring attorneys into which the deposit for the property and the balance of the purchase price will also be paid.
Once these funds have been cleared by the South African Reserve Bank, it will be released to the trust account of the nominated party, and will be invested for the non-resident’s benefit. Any purchaser can rest assured that these deposits are secure and guaranteed, as the operation of these trust accounts are regulated by the professional boards of such agent / attorney.
3. The Transfer Process
In South Africa all contracts to buy immovable property need to be in writing. Such contracts usually take the form of an Offer to Purchase or an Agreement of Sale and are legally binding once signed by the buyer and seller. Contracts can be signed overseas before a Notary Public or at the South African embassy in certain countries, but non-resident buyers usually find it easier and cheaper to give a trusted representative in SA power of attorney to sign the necessary documents on their behalf. Find the link to a special power of attorney below should you require same.
The transfer attorney will attend to having the property registered in the new owner’s name at the local Deeds Office, which keeps the record of all property titles in a particular area. The transfer process is largely an administrative process, which takes generally six to eight weeks, as the attorney first needs to obtain municipal and tax clearance certificates, cancellation figures for any existing mortgage bonds over the property and various other documents. The process can roughly be set out as follow:-
Sign the offer > Transfer attorneys receive contract > Bond approval > Receive guarantees from bond attorney > Fees and deposits paid > Documents signed > Transfer documents sent to deeds office > Transaction is lodged at deeds office > Property registered in new owners name > Seller vacates property > Buyer takes occupation > Pay out of any funds needed and close file. For a detailed explanation as to the transfer process see the link listed below.
4. Transferring proceeds of a sale out of South Africa (Repatriation of Money)
The number one concern we are usually asked to address from any Non-resident buyer is whether they will be able to take their money out of SA once they again sell their property in future somewhere. Reassuringly, the simple and short answer is YES. Money from a foreign source together with any profit, proportionate to that non-resident’s shareholding in the property, may be repatriated in due course in terms of SA Exchange Control Regulations. There are however some red tape and some important points to observe.
Firstly, the repatriation will need to be approved by the Reserve Bank and the non-resident will need to produce the original agreement of sale, the transfer attorney’s final account and any deal receipts they were given when they brought funds into SA.
If the non-resident owns property together with a SA resident, only his portion may be repatriated, and is limited to the amount which can be proven to have emanated from a foreign source plus the profit on that portion.
On transfer of the property to the non-resident purchaser, all deal receipts, a copy of the agreement of sale together with the conveyancer’s final statement of all costs, must be retained by the non-resident purchaser for the duration of his ownership and will have to be presented to the Reserve Bank on sale, when the proceeds are to be repatriated back abroad. This facilitates the repatriation of the funds and profit on sale of the property.
Finally, the repatriation of funds will be subject to any possible capital gains tax on the asset (property).
5. Tax implications
There are various tax implications to owning a property in South Africa. Please note that the summary below is for information purposes only, does not cover all South African taxes and is not to be viewed as tax advice. We strongly recommend that you seek the relevant advice if you have any queries relating to tax and owning property in South Africa.
Any non-residents who purchase property in South Africa will be required to register as South African tax payers solely for the purposes of their CGT obligation. This does not have to be done immediately when the property is being purchased or registered, but will have to be done before the property is again sold in future. This is not a difficult process and is easily managed through either the parties’ attorney, tax consultant or online.
The following is some taxes that you will no doubt incur when buying / selling / owning a property in SA:
A purchaser that acquires a property or any interest in property has to pay transfer duty, which is a tax payable to the South African Revenue Service, payable by purchasers of all types of properties and is in addition to the selling price. Transfer Duty is based on the value of the property and is calculated according to a sliding scale. Here is a quick table indicating the Transfer Duty liability (you will see this is also detailed on the cost calculator link as provided below):
|Value of the property (R)||Rate|
|1 – 1000 000||0%|
|1 000 001 – 1 375 000||3% of the value above R1 000 000|
|1 375 001 – 1 925 000||R11 250 + 6% of the value above R 1 375 000|
|1 925 001 – 2 475 000||R44 250 + 8% of the value above R 1 925 000|
|2 475 001 – 11 000 000||R88 250 +11% of the value above R2 475 000|
|11 000 001 and above||R1 026 000 + 13% of the value exceeding R11 000 000|
Capital Gains Tax (CGT) (Only applicable when selling)
You will be liable for the payment of Capital Gains Tax (“CGT”) on the disposal of any capital asset, subject to certain limited exceptions.
The capital gain is calculated and disclosed in the individual’s income tax return for the year in which it is sold. Thus, if a non-resident disposes of immovable property in any year of assessment and is not already registered as a South African taxpayer, he or she will have to register as such and submit an income tax return reflecting the calculation of the capital gain and will be liable for the payment of CGT on that gain.
CGT is calculated as the difference between the sale proceeds and the base cost. In simple terms, the base cost is the original purchase price plus any improvements to the property and costs of sale. A portion of the capital gain is included in the taxable income of the taxpayer, at the inclusion rate applicable to the relevant tax payer. For individuals, the inclusion rate is 40%, for companies, close corporations and trusts the inclusion rate is 80%. The portion included is then added to the other income of the tax payer and then taxed at the respective tax rate. The maximum rate for capital gains for individuals is 18%, for companies and close corporations it is 22.4% and for Trusts it is 36%.
Withholding Tax (Only applicable when selling)
An obligation relating to the withholding of a percentage of the sale proceeds from non-resident sellers was introduced into our tax laws in 2007. This provision requires that, where a non-resident sells a property for more than R2 million, provisional CGT must be paid to SARS in an amount of:
- 7,5% in the event of a natural non-resident seller,
- 10% in the event of a foreign company; and
- 15% in the event of a foreign trust
unless a specific CGT directive is applied for prior to transfer of the property being registered, which means SARS determines the exact amount of tax payable by the non-resident, which is often less than the 7,5%.
While South Africans are taxed on their worldwide income, non-residents are liable for income tax only on income accruing from a South African source. For example, if the property is rented, the rental income will be subject to South African income tax. In addition, a non-resident is liable for payment of capital gains tax on the disposal of a South African property.
Finally, it is important to note that a non-resident who has not permanently immigrated to South Africa will be considered a resident for income tax purposes if he or she spends more than a certain length of time within the country. This is known as the “physical presence test” and is calculated in terms of days spent in the country over a three year period.
No tax is levied on foreign pensions.
This is a tax on the estate of deceased persons and is currently 20% on the first R30,000,000 and at a rate of 25% above R30,000,000. For non-residents (foreigners) this applies to the South African portion of their estate only, after deducting an abatement of R3,500,000 and certain other allowable deductions.
6. Costs to be aware of
As a rule of thumb, you should allow for between 8% and 10% of the amount of the purchase price of the property for all the other costs involved in purchasing a home (this includes the legal fees and the transfer duty). These costs are commonly referred to as Transfer Costs and are paid by the purchaser, although the seller usually appoints the transferring attorney. A quick link to the various costs associated with buying a property can be found in the links below, as well as an online calculator which will calculate your liability in terms of costs specific to your transaction.
Do I need to open a SA Bank account
It isn’t immediately required. However, if the buyer will be letting out the property while they are not in SA, they should be aware that they will need a non-residential South African bank account.
Do I need Insurance
Household insurance is a must, but often because of the length of time the property is unoccupied, your premiums may be higher to cover the associated risks. It’s important to check the terms and conditions of your policy and ensure that all the specified security requirements are met. These will no doubt include a radio-linked alarm system with armed response, burglar guards on opening windows and security gates on external doors.
Can non-residents lease their properties
Yes. Non-resident owners of property have all the same rights of ownership including the right to recover rental income from lessees. Rental income is normally taxable in South Africa.
Who chooses the attorneys who will attend to the transfer of Property
It is customary in South Africa for the seller of immovable property to nominate the attorneys who will attend to the transfer. Such attorneys then act for the seller and on his or her instructions. Consequently, in the event of a dispute between the seller and purchaser, the purchaser would have to seek independent legal advice. Although the Conveyancer is usually appointed by and acts for the Seller, he/she has a fiduciary duty of care towards the Purchaser. There is generally no need for the Purchaser to have legal representation during the process; however, you are at liberty to appoint a legal representative to supervise the transfer on your behalf.
When purchasing property as a foreigner, it is important to partner with a team of experts you can trust. The information above has been compiled and provided by Gustav Barkhuysen (Bcom LLB: Stellenbosch), the founder and Director of GB LAW, a small boutique property and conveyancing law firm nestled in the heart of Cape Town, in the V&A Waterfront. GB LAW is well experienced in assisting foreign nationals purchase property in South Africa, and have also supplied helpful links to various documents, brochures and sites referenced above, to assist with any further queries you might have:
- GB LAW: https://www.gblaw.capetown/home
- Special power of attorney: https://59891e7b-3f6b-4a22-95f6-0adc1ed052a2.filesusr.com/ugd/d0f96f_f9abbf4021494e7b9bd8bcaae65449f9.pdf
- Transfer Process Explained: https://www.gblaw.capetown/documents-transferandbond
- Calculate your Costs: https://gblaw.bondcalculatoronline.co.za/
- VISA Assistance: https://www.vfsglobal.com/dha/southafrica/