property purchase in sa
South Africa uses
a land registration system and land ownership is recorded in a regional
deeds registry. The system used is widely regarded as being one
of the best in the world with security of tenure being guaranteed.
|
It is possible to own property in South Africa as an individual,
jointly in undivided shares or by entity such as a company, trust
or closed corporation (unique to South Africa).
All property purchase
and sold must be by written contract, contain certain prescribed
information and signed by purchaser and seller to be valid and legally
binding. This contract normally takes the form of an ‘offer to purchase’
which, once accepted by both parties constitutes an agreement of
sale. The agreement of sale may contain certain suspensive conditions
and statutory requirements such as “cooling off period” for properties
of value less than R250, 000 which may need to be fulfilled to make
the contact legally binding. |
|
Registration and
transfer of property is handled by a conveyancer who is normally
appointed by the seller and the cost of attendant thereon is usually
for the account of the purchaser. The process of transfer of registration
of ownership is a complex one and involves many prescribed steps
and procedures which are coordinated and executed by the conveyancer.
It is recommended that a purchaser who does not reside normally
within South Africa sign a general power of attorney in favour of
a trusted person within the country to assist with signing of documents
as required from time to time.
All property is sold
on a “VOETSTOOTS” basis (AS IS FOUND) save for clauses which cover
latent defects and the purchaser should generally satisfy themselves
as to the condition of the property before proceeding with an offer
to purchase, it is not normal procedure in South Africa to have
a property survey conducted as part of the sales process. Non residents
will be subject to the same laws and regulations which apply to
South Africans.
To The Top
non residents
There are no restrictions
of ownership of property in South Africa by non residents with the
exception of “illegal aliens”. Any non resident purchasing property
in South Africa must comply with maximum periods of stay allowed
for and will have to apply for a resident permit if expected periods
of stay are to exceed maximum allowed.
There are certain
requirements and restrictions on entities registered outside South
Africa which are used for property purchase in the country. In order
to service payments of a mortgage, non residents will need to open
a non resident banking account and will be required to provide certain
documentation including certified copies of passport, proof of income
and address details. In some cases local currency may be paid into
the account for receipt of rental income and profit from the sale
of immovable assets.
Non residents will
be liable for payment of tax on income derived from the South African
property such as rental income as well as capital gains tax on the
profit from disposal of the asset. There are measures in place to
ensure that any tax liability for sale of property in excess of
R2 million by non residents is retained by the purchaser and paid
over to the receiver of revenue in the form of “withholding tax”.
These amounts are 5% of the purchase price if the seller is a non
resident individual, 7, 5% if the seller is a non resident company
and 10% if the seller is a non resident trust and is classed as
advance collection in respect of tax liability for the disposal
of the asset.
In the event of death
of a non resident, estate duty is calculated at 20% of the dutiable
amount of an estate which is subject to an entitlement of R3, 5
million rebate; however this rebate is limited to assets situated
in South Africa.
To The Top
buying and selling costs
Brokerage at a predetermined
percentage (usually 7, 5%) of the value of the property is payable
by the seller to the estate agency on successful conclusion of a
sales agreement unless otherwise agreed. The seller is also responsible
for providing a beetle and electrical compliance certificate (statutory
requirement), any electrical repairs or fumigation required to achieve
this will be for the account of the seller.
The purchaser is
responsible for payment of any transfer duties and mortgage registration
costs which may be incurred. Transfer duties payable to the receiver
of revenue are as follows: |
| Natural Persons |
| Cost |
Transfer Duty |
R0 to R500, 000 |
No transfer duty payable |
R500, 000 to R1, 000,000 |
5% payable |
Above R1000, 000 |
8% payable |
|
Where the purchaser
of the property is not a natural person i.e. company, trust or closed
corporation, then 8% transfer duty is payable on the full purchase
price. Solicitor fees, on a sliding scale and other deeds registry
fees are payable by the purchaser. Transfer duties are not payable
if the seller is registered for V.A.T. Other costs to consider are
Deeds office levies, pro-rata rates and taxes/sectional title levies
and cost for obtaining rates/levy clearance certificates.
Foreign
purchasers of property in South Africa should be aware that all
immovable property is sold “voetstoots” or “as is” and must make
sure that they fully understand the contract of sale before entering
into the agreement. This clause effectively allows the seller to
contract out of any liability for certain defects which may exist
in the property such as broken windows, rising damp or structural
faults which are apparent or which may be discovered later. This
clause does not however allow the seller to fraudulently misrepresent
the property and places an obligation on the seller to make the
purchaser aware of any faults or defects of which the seller is
aware at the time of sale.
It
is up to the purchaser to fully inspect the property prior to purchase
to make an informed decision and possibly negotiate reparations
with the seller. In the case of property purchase in new developments
and off-plan schemes, the contract usually allows for a period in
which the purchaser can identify and report defects which will be
attended to by the developer and there is also a guarantee period
for new developments laid down by the NHBRC which must be adhered
to by the developer.
To The Top
fractional
ownership
|
Fractional
ownership is fast becoming the preferred way to own a slice of luxury
real estate in South Africa. There are a number of potential hazards
to be aware of before embarking on a fractional ownership purchase
such as the tax treatment of fractional ownership and how the asset
will be managed.
It
is recommended that the purchaser seek professional tax advice and
confirmation of management structure before embarking on the purchase
of such an asset.
|
Fractional ownership can best be described as
the collective ownership of an asset and differs fundamentally from
time share in that the owner holds a fractional title to physical
bricks and mortar as opposed to a portion of time and will benefit
directly from any capital growth on the asset. Usage of the asset
is usually divided equally amongst the shareholders as are costs
associated with ownership of the asset such as council taxes and
maintenance.
It
is vital that the fractional title contract clearly covers all issues
relating to usage and cost allocation to prevent problems from arising
through misunderstanding.
To The Top
other consideratins for foreigners and expats
It
has been estimated that as many as 10% of expatriate South Africans
living in the UK have already bought property in South Africa or
intend to do so in the short term. Some surveys have shown that
more than 30% of UK based South Africans already have or intend
to purchase property in South Africa and some own two or three properties.
Some of the main reasons for this is that the weaker Rand and relatively
cheaper property prices have made it an excellent medium to long
term investment proposition.
Foreign
purchasers can rest assured that there are no laws which prohibit
foreign nationals from owning property in South Africa. Foreign
purchasers should be aware of the following necessities when undertaking
this purchase of property in South Africa:
- A written agreement of sale of immovable property must be entered
into between the purchaser and seller in terms of the Alienation
of Land Act of 1981
- All requirements of the Financial Intelligence Centre Act 38
of 2001 and Prevention of Organised Crime Act 121 of 1988 must be
adhered to. This includes proving who they are, where they live
and declaration of source of funds for the purchase of property.
- Depending on the V.A.T. status of the vendor, they must be prepared
to pay transfer duty at predetermined percentages of the purchase
price or V.A.T. on the purchase of immovable property, whichever
is applicable. They must also be prepared to pay the transferring
attorneys conveyancing fees and any pro-rata rates and taxes on
the property.
- It is possible to expatriate funds from the profit of the sale
of immovable property in South Africa by foreign nationals subject
to certain documented proof of sale of the asset and subject to
capital gains tax which may be payable on the profit realized from
the disposal of the asset.
To The Top
financial considerations
Purchasing of property
in South Africa will normally require an initial reservation fee
of 10% of the value of the property on acceptance of offer to purchase
and the balance payable within 30 days of acceptance of offer to
purchase. Should a mortgage be required by the purchaser to fund
a portion of the purchase price, then an approved mortgage certificate
must be lodged with the conveyancers and the balance in the form
of a cash guarantee within six weeks of acceptance of the offer.
Non residents will normally only be able to apply for a mortgage
of 50% of the value of the property unless a residence permit is
held, in which case the applicant may apply for a higher mortgage
subject to rules which apply.
|
