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Guidelines to Property & Investment in South Africa
 
Purchasing property in South Africa

Purchasing property in South Africa is typically transacted through an estate agent, broker or directly from a developer. A written contract is required between the buyer and the seller, signed by both parties with a description of the property and the purchase price of the property.

It is required from estate agents and brokers to be members of the Estate Agents Board and to be in possession of a Fidelity Fund Certificate. On finalization of the Deed of Sale, the agreement is handed to a transferring attorney, who is appointed by the seller and attends to the transfer of the property into the name of the purchaser.

Registration of property

The property is to be registered at the Deeds Office. South Africa has one of the most sophisticated and successful deeds registration systems worldwide. The details of the registered property are open for public enquiries. Properties can be registered in one of the following ownership structures:
Individual or Joint Ownership
Company
Close corporation
Trust

South African Finance for Foreigners

Foreign buyers may raise local finance equal to the amount legally introduced in South Africa. Therefore, if a foreigner buys a property for R2 million, finance for R1 million could be raised locally on assumption that no other money was introduced into South Africa.

Repatriation of Funds Back Overseas

All funds brought into the country with the approval of the Reserve Bank could be repatriated as well as any capital gains after deduction of any Capital Gains Tax payable.

Security of deposit paid

The deposit is normally held in Trust by an attorney or estate agency on behalf of the purchaser until transfer. Interest will normally accrue to the purchaser until transfer of the property. The holding of a deposit in an attorney’s trust account or the trust account of an estate agency is secured by fidelity fund insurance.

Forms of property ownership

Property could be bought as freehold property, sectional title, leasehold or share block. Freehold and Sectional Title ownership is the most common form of property ownership. Every sectional title scheme (and most estate type developments) has a body corporate and trustees are elected from the owners of the properties who effectively manage the body corporate on behalf of owners. A levy is raised by the body corporate to cover all the operating costs of the estate and the owner is only liable for the maintenance of the interior of the property.

Property ownership by foreigners

Foreigners can own property in South Africa in their own name or through an interest in a legal entity such as a trust, close corporation or a company. The decision of entity of ownership will depend on decisions relating to tax and estate planning.

Taxation in South Africa

A foreign owner will be liable for the following taxes in South Africa: Income Tax and Capital Gains Tax (see details below).

Income tax

The owner will be taxed in South Africa on the net property income after taking into account the payment of levies on the property, insurance, interest on borrowings and any other property expenses like maintenance etc.

Capital gains tax

Capital gains tax is payable in the year when the asset is disposed and foreign owners will also be liable to pay tax on capital gain in South Africa. Herewith the rate of capital gains tax payable: Individual ownership = up to 10% of capital gain Companies and close corporation = 15% of the capital gain Trusts = 20% of the capital gain

Opening of bank accounts

Any foreigner is allowed to open a non-resident bank account with commercial banks in South Africa. Income derived from property rentals could be paid into such a bank account.

Costs associated with the purchase of property

There is no transfer duty payable by the purchaser on a new property bought from a developer, as Value Added Tax is included in the purchase price. Transfer Costs will be payable to the attorney and this is calculated on a sliding scale of between 1 and 2% of the property value. Should finance be raised on the property, mortgage registration costs will be payable on a sliding scale. The total fee could be up to 0.4% of the value of the bond registered.

Costs incurred when selling a property

As the seller of a property, you will be liable for estate agents commission of up to 7.5% plus VAT on the selling price of the property. This amount can be negotiated.

Conditions for claiming back the VAT on a property

The Value Added Tax included in the purchase price could be claimed back if the property is rented on a short-term rental basis on condition that the annual gross rental income is at least R60 000 per year. Should you not buy from a developer, transfer duty is payable and this could be claimed back as deemed input.

VAT

VAT could not be claimed back if the property is rented on a long-term rental agreement.

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