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MORTGAGES + PROPERTY FINANCE
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Information on how to finance your South
African property investment through us ...
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The below information is
provided by Mortgagesa
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Purchasing property
in South Africa as a foreigner
This section is
designed to assist foreign buyers / non-residents
with questions and issues they may have regarding
the purchasing of property in South Africa.
South 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 granted. 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.
Foreigners are referred to as non-residents, whether
they be natural persons or legal entities whose
normal place of residence, domicile or registration
is outside the common monetary area of South Africa.
A South African Resident who has lived abroad for
more than 5 years, regardless of whether or not
he/she has emigrated will also be regarded as a
non-resident for the purposes of obtaining finance
in South Africa. There are certain restrictions on
property ownership by non-residents, and it is
prohibited for illegal aliens to own immovable
property within South Africa. There are also certain
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 a 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.
This section has been broken up into the following
sections to give you insight into various questions
and procedures with regards to purchasing property
in South Africa as a non-resident.
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Purchasing a property
Property of any kind
in South Africa is usually purchased through a
broker or Real Estate agent who should be a
registered member of the Estate Agents Board.
In South Africa, all contracts to purchase property
must be in writing, must contain certain set
information and be signed by both the buyer and
seller of the property, for the contract to be
legally binding. These contracts usually take the
form of an Offer to Purchase or Agreement of Sale,
and once this has been signed by both parties is a
valid binding document from which neither party can
withdraw without incurring legal consequences.
Accordingly the decision to enter into and sign an
offer to Purchase / Agreement of sale is not
something to be taken lightly and it is recommended
that an inexperienced purchaser obtain independent
legal advice if uncertain in any respect.
The offer to purchase will contain certain of the
following standard provisions
- Purchase
price : a deposit is not obligatory but serves
as a gesture of good faith on the part of the
purchaser and an indication of financial
capacity. 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
- Voetstoets –
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 must be
brought to the attention of the purchaser.
- Electrical
and Beetle 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 requirements. The beetle
free certificate certifies that all accessible
parts of the property are free of infestation by
certain defined beetle.
- Fixtures and
fittings - A property is sold with all fixtures
and fittings of a permanent nature situated
thereat. Generally fixtures and fittings include
anything with 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.
Besides individual or
joint ownership, property can also be obtained by
means of acquiring the shares / members interest and
local claims in a company / close corporation
respectively which company is the registered owner
of a property. These contracts should also be in
writing. Only a natural person can acquire the
member’s 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 the same should it be a
condition of the purchase.
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Financial assistance
Non Residents
There are certain restrictions on non-residents
wanting to purchase property in South Africa. The
non-resident may borrow up to a maximum of 100% of
his/her borrowing base. The ‘Borrowing base of a
non-resident individual is the sum introduced into
South Africa to fund the purchase of a property, i.e
50% of the purchase price Eg “A non-resident wishes
to purchase a property in South Africa for
R600,000.00. Provided R300 000.00 is introduced into
South Africa to effect the purchase he / she would
be able to apply to the South African Reserve bank
for permission to avail himself of a bond of R300
000.00. In other words banks will lend up to 50% of
the purchase price, subject to their normal terms
and conditions, which would include a valuation of
the property.
Technically, if a non-resident has consistently
brought funds into the country over a number of
years, he/she may borrow up to a maximum of 100% of
the total funds invested in South Africa –
theoretically this could also be more than 50% of
the purchase price of the property.
Such non-resident loans are however subject to
foreign exchange approval from the South African
Reserve bank. 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.
MortgageSA can apply to all the major financial
institutions in South Africa on your behalf, for a
mortgage bond, thereby obtaining the most
competitive package for you. This is a free service
and no fee is charged. The obtaining of financial
assistance from a financial institution should be
included in the agreement of Sale as a suspensive
condition where the sale is subject to the receiving
of financial assistance.
The Non-resident does not have to open a banking
account in SA with a commercial bank, although some
banks insist, as he/she can transfer funds directly
from his overseas account into his Mortgage Account.
If an account is to be opened, especially if an
access facility is required for the capital paid
off, then the non-resident is required to obtain an
original letter of credibility from his bankers. .
This local account will often be funded from abroad
or from rental income from the property purchased,
subject to the bank holding the account being in
possession of a copy of the rental agreement.
As Exchange control is a complex subject, Non
Residents are advised to consult with our MortgageSA
property finance consultants on this issue.
Temporary residents / foreign nationals
Foreign Nationals (temporary residents) may apply
for local financial assistance, including a mortgage
/ bond for the purchase of residential property.
Such mortgage / bond is not restricted and depending
on the standing of the client, can be 100% of the
purchase price of the property. The granting of any
borrowing facility is subject to the approval of the
Lending Manager in the Branch of the bank where the
foreign national holds his / her account. It is
important to note that when a foreign national
departs the Republic of South Africa, the criteria
for Non-Resident purchasers will apply and the bond
may have to be reduced to fall in line with the
South African Reserve Bank’s formula requirements.
Please talk to one of our experienced MortgageSA
Property Finance consultants to facilitate you with
your application for bond finance.
South African Residents working abroad
For South African residents, working abroad, an 80%
mortgage Bond can be obtained. Most banks will look
at granting up to an 80% loan but each application
will be looked at on individual merit. Some clients
have been granted 100% finance but in exceptional
circumstances. You must only be living abroad
temporarily and must have plans to return to South
Africa. Moreover, an application to emigrate must
not have been made, nor should you have surrendered
your permanent residency status in South Africa.
Please speak to one of our experience MortgageSA
Property finance consultants to assist you in this
regard.
Contract workers
Contract workers are regarded as South African
residents for the purposes of obtaining finance in
South Africa and can therefore borrow up to 100%,
subject to normal income qualifying criteria.
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Costs involved in
property purchase
The entire process of
property transfer involves a number of people,
beginning with the seller who will sell his/her home
either privately or with the assistance of an Estate
Agent. If the property is sold by an estate agent
the seller will pay commission to the agent. The
amount payable is negotiable but the ‘normal’
tariff, recommended by the Institute of Estate
Agents is 7.5% - this commission will attract VAT as
the agent is providing a service to the seller. VAT
is currently at 14%.
The purchaser is responsible of the payment of
transfer costs and the costs of registering any new
mortgage bonds over the property purchased. He / she
will also have to pay an inspection fee and
initiation fee. Transfer costs include transfer duty
and conveyancers fees. Transfer duty is calculated
as a percentage of the purchase price and varies
depending on the purchaser's legal status. For a
legal person it is 8% of the purchase price. For a
natural person the calculation is as follows :
- For a
purchase price of R0 - R500 000.00, the duty is
0%
- For a
purchase of R500 001.00 - R1 000 000.00, the
duty is 5% on the value above R500 000.00
- For a
purchase price of R1 000 001.00 and above, the
duty is R25 000.00 + 8% on the value above R1
000 000.00
Converyancers fees,
charged by the attorneys for attending to the
transfer and registration of mortgage bonds are
calculated according to a tariff.
Bond Costs
Bond costs are the costs incurred for raising
mortgage finance. Mortgage registration fees
according to a prescribed tariff are payable to the
registering attorney.
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Example |
Deeds
fee levy |
Conveyancing fee |
VAT
fees |
Total |
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R150 000 |
R 200,00 |
R2000,00 |
R 280,00 |
R2480,00 |
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R250 000 |
R 260,00 |
R2400,00 |
R 336,00 |
R2996,00 |
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R300 000 |
R 260,00 |
R2700,00 |
R 378,00 |
R3338,00 |
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R500 000 |
R
340,00 |
R4000,00 |
R
560,00 |
R4900,00 |
Therefore: a home costing R500,000 with a 50%
mortgage bond registered in your own name would
attract additional costs of R2 996.
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Exchange Control /
re-patriation 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, after
deduction of any capital Gains Tax payable, 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 foreign
loan to find 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’.
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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-resident 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 tax payer.
Income earned by natural persons below R27 000 per
annum (for persons under the age of 65) and R42 640
(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.
Corporate entities are subject to a tax rate of 30%
of each Rand of taxable income whilst the equivalent
rate for a trust 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.
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Capital Gains Tax
Non-residents 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.
- 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 tat the individuals marginal rate
of income tax. The maximum marginal income tax rate
for individuals in South Africa is presently 40%.
The capital gain is calculated and disclosed in the
individual’s 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,
her 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.
South African residents to 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 there primary
residence is not in South Africa.
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Please note this
information may change at any given time without prior notice
and is only to be used as a guide.
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