Investors Guide to South Africa

The Purchasing Process

Although South Africa boasts of 11 different officially recognised languages, all legal transactions such as property purchasing, is carried out in English. This is greatly beneficial for foreign investors, as the processes are clearly understood without the additional issues of arranging translators for contracts and official documents.

The purchasing process is well regulated and considered to be extremely secure, with a registration system of the highest standards. There are no restrictions on foreign ownership, enabling increased freedom for overseas buyers. A note of importance is that all funds entering the country are required to be declared and documented, avoiding the establishment of black market funding in the property sector.

Buying property in new developments follows a very similar process to other markets worldwide. Re-sale properties require a letter of intent to purchase that is required to be submitted to the seller for approval.

An initial deposit of 10% is common for property purchases, with any staged payments during construction being outlined in the contracts that are signed between the buyer and seller. Once the letter of intent is signed by both parties, it becomes a legally binding contract.

The final payment of the property is required once the new owner is recorded in the official property registry and the keys to the property are exchanged. Using a solicitor specialising in South African property is highly advisable, ensuring correct processes are followed. The representing lawyer will ensure that all of the correct documentation for the property is available to ensure a safe and secure purchase.

Fees & Taxes

Although income taxes can be high in South Africa, there are various deductions and benefits that are available to both residents and non residents when purchasing property. Taxes are based on a progressive rate, with the greatest benefits associated with properties in the lower price brackets. These have been designed to assist the entry to the property market of the growing domestic middle class society.

The growth and development of the tourism industry has extended, assisting buyers of property intended for short term rental accommodation. Grants of up to 30% of the property value are available to owners, assisting with the development of this particular market.

The total associated buying costs for property in South Africa is between 0.35% and 15.8%.

• No VAT on property purchases
• No transfer tax on properties up to approx. US$63,000
• No inheritance tax for properties up to approx. €435,000
• Stamp duty is charged at a progressive rate between 0% and 8%
• Capital gains are approximately 10%, with the charge included in the income tax rate.
• Income tax is based on worldwide income between 18% and 40%
• Property tax is approximately 0.07% to 0.4% of the market value.

Financing the Property

Although the mortgage market is relatively new in South Africa, favourable terms are available to many foreign investors. The growth of the market has been greatly attributed to the fast expanding middle class society, assisting both the real estate market and the economy.

As the property market began to slow with the downturn in the world economy of recent times, the amount of funds that could be borrowed received stricter limitations. The interest rates grew from around 10% to 15% in an effort to keep the local housing market stable.

At the time of the original growth of the mortgage market in South Africa, loans of over 100%LTV were common practice. This was designed to enable increased numbers of potential buyers to enter the market, receiving finances to cover the associated buying costs.

Changes in the system have lowered the maximum loan amount to between 85% and 100%, depending on the price of the property being purchased. While this has assisted the market from severe collapse, the terms and conditions remain highly attractive in comparison to other world markets.

Mortgages and loans for property in South Africa can be arranged through a variety of banks and financial providers, with rates varying slightly between companies. Often non-residents are advised to seek the services of financial advisors, as direct services from South African banks often lend much lower Loan-to-Value percentages. As a guide, the following details can assist with the general applicable terms

• Up to a maximum of 100% of the property’s valuation price
• Repayments up to 25 years
• Maximum age at maturity of the loan is 70 years.
• Minimum amount to borrow is the equivalent of around £20,000
• Total repayments must not be in excess of 35% of net monthly income

More about overseas property finance

Visitors Guide to South Africa
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