Buying Property in South Africa
GENERAL GUIDE
Updated
Monday, 14 May 2007South Africa follows a system of
land registration where every piece of land is reflected on a diagram and
ownership recorded in one of the regionally located Deeds Registries where
documents are available for public viewing. South Africa is reputed to have
one of the best deeds registration systems worldwide with an exceptional
degree of accuracy and of tenure being guaranteed. Property can be owned
individually, jointly in undivided shares or by an entity such as a company,
close corporation or trust or a similar entity registered outside South
Africa.NON-RESIDENTS
There are no restrictions on property ownership by
non-residents, save for a prohibition on illegal aliens owning immovable
property within South Africa. There are, however, procedures and
requirements which must be complied with in certain circumstances, such as,
the local registration of entities registered outside of South Africa where
it purchases property in South Africa and the appointment of a South African
resident public officer for a local company whose shares are owned by a
non-resident.
BUYING A PROPERTY
All contracts to acquire land must be in writing, contain
certain prescribed information and be signed by both buyer and seller to be
valid and legally binding. Contracts most commonly take the form of an
Agreement of Sale or Offer to Purchase which once accepted constitutes an
Agreement of Sale. Once an Agreement of Sale has been signed by both parties
it represents a valid and binding document from which neither party can
withdraw without incurring legal consequences, save for certain instances
where:
- the agreement is subject to certain conditions which
are either fulfilled/not fulfilled;
- the purchase price is less than R250 000.00 and certain
additional criteria in terms of the Alienation of Land Amendment Act are
present entitling the Purchaser to "cool off".
The de facto ownership of property can also be obtained by
means of acquiring the shares/members interest and loan claims in a
company/close corporation respectively which company/close corporation is
the registered owner of a property. These contracts, strictly speaking, need
not be in writing and can be concluded verbally which, although legally
binding, is not advisable and it is recommended to record the agreement in
writing to ensure that the material terms agreed to are accurately recorded.
It is important, furthermore, to note that only a natural
person can acquire the members' interest in a close corporation.
Accordingly, if it is intended for a non-resident company or Trust to be the
ultimate purchaser, provision can be made for the close corporation to be
converted to a private company at a nominal expense to facilitate same and
this should be a condition of purchase.
Accordingly the decision to enter into and sign an Offer
to Purchase/Agreement of Sale is not a decision to be taken lightly and it
is recommended that an inexperienced purchaser obtain independent legal
advice if uncertain in any respect.
FINANCIAL ASSISTANCE
There are restrictions on loans to non-resident purchasers
of property. In brief, the non-resident may only borrow up to a maximum of
the amount invested by the non-resident into the purchase of the property,
which translates into a 50% to value borrowing ratio. Such loans are,
however, subject to foreign exchange approval by the SA Reserve Bank which
approvals are efficiently handled by all South African Commercial Banks
offering financial assistance. Financial assistance is granted in the form
of a loan secured by a Mortgage Bond to be registered in favour of the Bank
granting the loan. The obtaining of financial assistance should be included
in the Agreement of Sale/Offer to Purchase as a suspensive condition where
the sale is subject to the receiving of financial assistance. There are
stringent restrictions and prohibitions imposed where the property is owned
by a company and financial assistance is sought to finance the acquisition
of shares and loan accounts in the property-owning company.
TRANSFER PROCEDURE
The registration of a property transaction is handled by a
specially qualified legal practitioner known as a conveyancer. It is
customary for the seller to appoint the conveyancer to attend to the
registration of transfer of a property sold, whilst the costs attendant on
same are for the account of the purchaser, unless contractually agreed to
otherwise.
The conveyancer prepares the requisite transfer
documentation that, after signature by the purchaser and the seller, is
lodged together with the cancellation of any existing mortgage bonds and new
mortgage bonds to be registered in a regionally located Deeds Registry. The
deeds are subject to an intense examination process whereafter they are made
available for registration. On date of registration of transfer all existing
mortgage bonds registered over the property are cancelled simultaneously
with the registration of any new mortgage bonds by the purchaser in favour
of the bank granting financial assistance. The purchaser is recorded as the
new owner of the property and the purchase price is paid to the seller. The
above procedure does not apply in an instance where the shares/members
interest and loans are acquired in a property-owning company/close
corporation where no change in ownership is recorded. It is important to
note that upon transfer to the new owner, any liabilities in respect of the
property incurred by the previous owner, remain with the previous owner and
not necessarily pass to the new owner, unless otherwise agreed to.
COSTS
Brokerage is payable where an estate agent is responsible
for concluding a sale of property. Brokerage is customarily payable by the
seller who mandates the estate agent to procure a purchaser for the
property. The seller is also responsible for the cost of procuring a 'beetle
free and electrical compliance' certificate. The purchaser is responsible
for the payment of transfer costs and the costs of registering any new
mortgage bonds over the property purchased. Transfer costs include transfer
duty calculated using the following formula, payable to the Receiver of
Revenue:
R0 - R100 000 Exempt
5% between R100 100 – R300 000
8% on the balance
Where the shares/members interest and loan claims in a
property owning company/close corporation are purchased, the purchaser may
save on transfer duty thereby ensuring a considerable saving in acquisition
costs. Stamp duty, which is a nominal amount, is payable on transferring of
shares from a seller to a purchaser.
Attorneys' fees for attending to the transfer and
registration of mortgage bonds are calculated according to a tariff. Further
sundry charges are imposed by the Deeds Registry and the Bank granting
financial assistance, whilst the Receiver of Revenue requires stamp duty on
all new mortgage bonds registered, calculated at 20c per R100.00 (or 0.2%)
borrowed.
SIGNATURE OF DOCUMENTS
Documentation prepared by the conveyancer pertaining to
the registration of transfer of the property and any mortgage bond to be
registered over the property is required to be signed in black ink and must
be authenticated if signed outside South Africa. This is sometimes
inconvenient and it is possible, and often advisable, to leave a General
Power of Attorney in favour of an entrusted person within South Africa to
assist in this regard. Where the purchaser is married, which marriage is
governed by the laws of a foreign country and a mortgage bond has been
applied for, please note that the spouse of the purchaser will be required
to assist the purchaser in signing the mortgage bond documentation.
Marriages according to the laws of the England and Scotland are exceptions
to the aforegoing rule.
BUYING A PROPERTY
OFFER TO PURCHASE/AGREEMENT OF SALE
The Offer to Purchase/Deed of Sale will contain certain of
the following standard provisions:
A deposit is not mandatory but serves as a gesture of good
faith on the part of the purchaser and an indication of financial ability.
This amount will be invested by the estate agent/conveyancer in an
interest-bearing trust account for the benefit of the purchaser.
Provision will be made in the Agreement for a guarantee to
be called for in respect of the balance of the purchase price. In general, a
guarantee will only be acceptable if issued by a local financial institution
which means that the funds will actually have to be remitted to South Africa
in order for a local bank to issue such a guarantee or, alternatively,
arrangements must be made between a foreign and local bank for a back to
back guarantee to be issued. It is, however, possible to negotiate the issue
of a Standby Letter of Credit from an overseas institution in certain
circumstances.
- OCCUPATION, POSSESSION, TRANSFER AND OCCUPATIONAL
RENTAL
Occupation is the physical occupation of the property
whereas possession is generally deemed to be the date upon which the
purchaser assumes responsibility for the property and it is customary for
the risk of ownership to pass on the date of possession. Transfer refers to
the actual date of registration of ownership in the Deeds Registry in favour
of the purchaser. Occupational consideration is the rental payable by the
party occupying the property belonging to another where the date of
occupation and date of transfer differs, which is better expressed in Rand
terms or as a percentage of the outstanding balance of the purchase price.
This is a standard inclusion in all deeds of sale and
implies that the property is bought as is. As is means 'in the exact
condition in which the property is found'. However, all patent and latent
defects present in the property within the sellers' knowledge must be
brought to the attention of the purchaser. It is not standard in South
Africa to conduct property surveys but these can be arranged with the
assistance of the estate agent or an attorney and should be included as a
condition of the purchase.
- ELECTRICAL AND BEETLE-FREE CERTIFICATE
The property owner is required by law to be in possession
of a valid 'electrical compliance certificate' certifying that the
electrical installation at the property meets certain statutory safety
requirements. The beetle-free certificate certifies that all accessible
parts of the property are free of infestation by certain defined beetle and
this certificate, whilst a standard inclusion in the Agreement of Sale, is
neither a legal requirement nor included in sales of sectional title units.
The cost of attending to the necessary repairs in order for the aforesaid
certificates to be provided, is generally accepted as being for the account
of the seller, although, the parties can contractually agree otherwise.
A property is sold together with all fixtures and fittings
of a permanent nature situated thereat. Generally fixtures and fittings
include anything which is attached to the property or which by virtue of its
considerable mass accedes to the property. In the event of any uncertainty,
the purchaser is cautioned to ensure that all items intended to be included
in the purchase price are specified in writing in the Agreement of Sale.
The format of agreements concluded for the acquisition of
shares/members interest and loan accounts in property-owning companies/close
corporations contains many of the aspects discussed above, although it is
substantially different and includes numerous warranties and indemnities
granted by the seller to the purchaser who acquires the property-owning
entity together with its financial history.
EXCHANGE CONTROL/REPATRIATION OF FUNDS
All funds introduced from outside South Africa to acquire
fixed property within South Africa may be repatriated together with any
profit on resale of the property, provided, the title deed of the property
has been endorsed "non-resident". Similarly, funds introduced to acquire
shares in a company/members interest in a close corporation may be
repatriated together with any profit on resale, provided, the relevant
securities have been endorsed "non-resident". Funds, introduced into South
Africa in the form of a foreign loan to fund acquisitions of corporate
entities which own property in South Africa, may be repatriated in terms of
the original loan approval by the Reserve Bank. The profit on resale may
also be repatriated, provided, the relevant securities have been endorsed
"non-resident".
INCOME TAX
South Africa follows a revenue-based income tax system
meaning that income earned from a South African source will be subject to
ordinary income tax. Accordingly, any rental earned by non-residents in
respect of South African properties will be subject to income tax and it is
the responsibility of the non-resident to register as a South African
taxpayer.
Income earned by natural persons below R27 000.00 per
annum (for persons under the age of 65) and R42 640.00 (for persons above
the age of 65) is exempt from income tax, whilst all income earned over and
above the aforesaid amounts, will be taxed at a marginal rate applicable to
that non-resident in accordance with published tax tables. The marginal tax
rate is calculated on a sliding scale with a maximum rate of 40%.
Corporate entities are subject to a tax rate of 30% of
each Rand of taxable income whilst the equivalent rate for trusts is 40%.
Non-resident companies are taxed at a rate of 35% but are exempt from
secondary tax on companies ("STC") in respect of dividends paid.
CAPITAL GAINS TAX
South African residents are liable for the payment of
Capital Gains Tax ("CGT") on the disposal of any asset, subject to certain
limited exceptions. Non-residents, however, are only liable to pay CGT on
the disposal of the following:
- Immovable property situated in South Africa, including
any right or interest in immovable property (this also includes an
interest of at least 20% in a company where 80% or more of the value of
the net assets of the company is attributable, directly or indirectly, to
immovable property in South Africa);
- Assets of a permanent establishment of a non-resident
through which trade is carried on in South Africa.
CGT is payable in the year in which the asset is disposed
of and is calculated by adding 25% of the capital gain, or profit, to the
individuals income for that year and taxing that income at the individuals
marginal rate of income tax. The maximum marginal income tax rate for
individuals in South Africa is presently 40% (reached at taxable income
levels above R240 000). The capital gain is calculated and disclosed in the
individuals' income tax return for the year in which it is sold. Thus, if a
non-resident disposes of an 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 became effective on 1 October 2001 and is thus payable
only from that date. The amount of a capital gain is calculated either by
deducting the value of the property as at 1 October 2001 (together with the
costs of acquiring and improving the property) from the proceeds on disposal
of the property or by apportioning the amount of time the property was owned
between the period before 1 October 2001 and the period after that date.
South African residents do not pay CGT on the first
R1-million of profit made on the disposal of their primary residence.
However, non-residents will not qualify for this exemption if their primary
residence is not in South Africa.
We suggest you also read our Legal Matters
| 
