A step-by-step guide on property investment for non-residents.
Looking to buy property in South Africa as a foreigner? Picture yourself surrounded by breathtaking wildlife, stunning beaches, vibrant cityscapes and a strong real estate market—all in one place, it's an attractive option. Here’s a quick guide to help you start the adventure.
1. Understanding the legal framework
Foreigners are allowed to buy property in South Africa, but specific exchange control regulations must be followed when transferring funds for the purchase. According to the Exchange Control Regulations, 1961, foreign buyers are required to process all foreign currency transactions through an authorized dealer, which is typically a South African commercial bank authorized by the South African Reserve Bank (SARB). This ensures that the inflow of foreign capital into South Africa is recorded and compliant with national regulations.
Key provisions of the law include:
Regulation 3(1): When foreign currency is used specifically for purchasing property in South Africa, the funds must be transferred into the country via an authorized dealer.
Regulation 6(1): Foreign owners can repatriate their funds (including profits from the sale of property), provided that they show proof of the original inflow of capital into South Africa. The property title deed should be endorsed as "non-resident" to facilitate the future repatriation of sale proceeds.
Relevant law: Exchange Control Regulations, 1961, issued under the Currency and Exchanges Act, 1933 (Act No. 9 of 1933).
2. Decide on the type of property
When purchasing property in South Africa as a foreigner, it’s essential to clearly define your purpose for buying, as different types of property come with unique legal and financial considerations. South Africa offers a wide range of real estate options, each with its own advantages and regulatory requirements:
- Residential property in urban areas (apartments, houses, townhouses)
- Commercial property (office spaces, shops)
- Agricultural land for farming purposes.
3. Research the South African property market
The South African property market fluctuates depending on location and type. Popular areas for foreign buyers include Cape Town, Johannesburg, Durban, and scenic coastal towns like Plettenberg Bay. Use property portals, to browse listings and get an idea of current property prices.
4. Secure financing and exchange control
Foreign buyers can obtain a bond (mortgage) from a South African financial institution, but the loan is generally restricted to 50% of the property’s purchase price. The remaining 50% must be funded through your own resources, which should be transferred into South Africa in compliance with exchange control regulations.
To comply with these regulations:
- All foreign currency transactions must go through a South African commercial bank.
- You will be required to open a non-resident bank account with a South African bank to facilitate the transfer of funds.
- Ensure you retain all records of foreign currency transferred into South Africa as this will help when you decide to sell the property and repatriate your funds.
In South Africa, a conveyancer (property lawyer) is required to handle the transfer of property ownership. The conveyancer is appointed by the seller but paid for by the buyer. Their role includes preparing the transfer documents, lodging them with the Deeds Office, and ensuring a smooth legal transition of ownership.
Relevant law: This is governed by the Deeds Registries Act No. 47 of 1937, which requires all property transfers to be managed by a registered conveyancer.
6. Sign an Offer to Purchase (OTP)
Once you’ve chosen your property, you’ll need to sign an Offer to Purchase. This is a legally binding document outlining the conditions of the sale, including:
- Purchase price
- Occupational rent (if applicable)
- Conditions of sale (e.g., subject to financing or bond approval)
The OTP must be signed by both the buyer and the seller. Once accepted, it becomes a contract of sale.
7. Transfer Duty and other costs
Foreigners must pay Transfer Duty when purchasing property in South Africa. This is a tax that applies to properties priced above a certain value, called the threshold, which is set by the South African Revenue Service (SARS). For example, if the threshold is set at R1 million, you would only pay transfer duty on the portion of the property price that exceeds R1 million. The threshold and tax rates may change periodically, so it's important to check the current values when buying property.
Transfer Duty calculator
Enter the property value to calculate the transfer duty based on the June 2023 rates.
For the most up-to-date rates, visit the South African Revenue Service (SARS) website.
8. Transfer process and registration
Once the Offer to Purchase is signed, your conveyancer will start the transfer process. This includes:
- Conducting title deed checks
- Ensuring all rates and taxes are up to date
- Preparing transfer documents
- Submitting documents to the Deeds Office
The Deeds Office will then officially register the property in your name. This process typically takes 8 to 12 weeks from the date of signing the Offer to Purchase.
9. Comply with FICA regulations
After signing the Offer to Purchase (OTP), one of the first steps for foreign buyers is to comply with South Africa’s Financial Intelligence Centre Act (FICA) regulations. This is a crucial process that ensures transparency in property transactions by verifying the legitimacy of the funds being used.
To complete FICA compliance, you’ll be required to provide:
- Certified copy of your passport (proof of identity)
- Proof of residential address, such as a recent utility bill
- Bank statements to verify the origin of the funds
The conveyancer handling the property transfer will request these documents shortly after the OTP is signed, and they are necessary before the property transfer can proceed. This step ensures that the transaction aligns with anti-money laundering laws and adds a layer of security, preventing any unlawful activity in property purchases.
10. Ownership and repatriation of funds
After the property is registered in your name, the conveyancer will ensure that you receive the title deed, which officially confirms your ownership. If you financed the property through a mortgage, the title deed is usually sent to the bank. If you paid in cash, it will be sent directly to you.
If you decide to sell the property later on, you can repatriate (send back to your home country) the money from the sale, but only up to the amount of the foreign capital you initially brought into South Africa. To repatriate the funds, you will need to show proof of your original investment, including any deal receipts or other documentation supporting the purchase price, and follow the rules set by the South African Reserve Bank.
A deal receipt is a document issued by your South African bank when you transfer foreign funds into your account. It serves as proof of the foreign currency you brought into the country for the property purchase. This document is crucial for demonstrating the source of your funds when you want to repatriate the sale proceeds.
FAQs
1. How is my deposit secured during the buying process?
Your deposit will be held in an interest-bearing trust account by the conveyancing attorney or estate agent until the property transfer is completed. The interest earned is credited to you, and any administrative fees will typically be deducted from the interest, not the principal amount.
2. How do I sign documents if I’m not in South Africa?
If you can't sign documents in South Africa, sign them at a South African embassy or consulate, or through a Notary Public in your home country. Ensure the Notary Public is authorized for South African documents. Note that procedures vary by country. Consult with legal professionals for accurate guidance.
3. Can I apply for a mortgage as a foreign buyer, and what are the typical terms?
Yes, you can apply for a mortgage in South Africa. Banks typically finance up to 50% of the property’s purchase value, with the remaining amount coming from your own funds. Terms and interest rates will vary based on the lender’s risk policy and the South African Reserve Bank's regulations.
4. What impact do exchange control regulations have on foreign buyers?
Exchange control regulations require that foreign buyers transfer funds through a South African commercial bank. When you sell the property, you can repatriate the sale proceeds, but Capital Gains Tax will be deducted. To repatriate funds, ensure your title deed is endorsed as “non-resident.”
5. What documents do I need to apply for a home loan?
Typically, you will need a signed loan application, proof of identity (ID or passport), proof of income (such as payslips), and your employment contract.
6. Do I need a visa to stay in my South African property?
While many countries have visa-free agreements with South Africa for short-term visits (usually up to 90 days), if you plan to stay in your South African property for an extended period, you will need to obtain a visa. The specific visa requirements will depend on your nationality and the duration of your intended stay.
