I would sometimes watch the UK television programme A Place in the Sun with my wife and wonder why someone would pay £250,000 for a small, ageing property in Spain or France when, for a similar amount, they could buy something quite spectacular in South Africa.
South Africa has long been regarded as one of the world’s best lifestyle destinations. From the vineyards and beaches of Cape Town to the spectacular coastline of the Garden Route, it offers an exceptional quality of life, a favourable climate and outstanding value for money compared to many international property markets.
For a foreign purchaser, however, finding the right property is only part of the equation. There are legal, banking, tax, exchange control and, importantly, immigration considerations that should ideally be understood before signing on the dotted line.
So, what should you know if you are considering buying property in South Africa?
Can a Foreigner Buy Property in South Africa?
The short answer is yes.
Foreign nationals and non-residents may generally purchase and own residential and commercial property in South Africa. You do not need to be a South African citizen or permanent resident to own property.
The purchase itself follows broadly the same conveyancing process as it would for a South African purchaser, but foreign buyers face some additional considerations. These can include how the purchase funds are brought into South Africa, financing arrangements, exchange control requirements, tax consequences and the documentation required by South African banks and attorneys.
It is therefore sensible to involve a South African property attorney early in the process, preferably before signing an Offer to Purchase.
Does Buying Property Give You the Right to Live in South Africa?
This is perhaps the most important misconception to address.
Owning property in South Africa does not, by itself, give a foreign national the right to live in South Africa.
Property ownership and immigration status are separate legal matters. Purchasing a R10 million home in Cape Town, for example, does not automatically give the owner a visa, permanent residence or an unrestricted right to remain in the country.
The appropriate immigration route will depend on the individual’s circumstances and what they intend to do in South Africa. Someone wanting to spend several months each year at a holiday home may have very different immigration requirements from somebody planning to retire permanently, establish a business or relocate to South Africa for work.
For this reason, we encourage foreign purchasers who intend spending significant periods in South Africa to consider their property and immigration arrangements together, rather than treating immigration as an issue to be addressed after the property has been purchased. This reflects the integrated approach BDP has adopted for foreign purchasers and their immigration requirements.
Can a Foreign Buyer Obtain a Home Loan in South Africa?
Yes, potentially.
A non-resident may obtain finance from a South African bank, although both the applicable exchange control requirements and the bank’s normal lending criteria need to be satisfied.
As a general rule, local financing provided to a non-resident is subject to a 1:1 ratio. Broadly speaking, for every R1 in cash introduced by the foreign buyer, an equivalent amount may generally be borrowed locally. Different rules may apply to non-residents who are living and working in South Africa.
This is why a foreign purchaser who intends financing part of the purchase price should investigate the available finance before entering into an unconditional agreement of sale.
How Should I Bring the Purchase Money into South Africa?
This is an area where proper planning and record keeping are important.
Foreign purchasers can introduce funds into South Africa to acquire property. However, the funds should be transferred through appropriate banking channels and the purchaser should retain proper records of the amounts introduced and their source.
Those records may become particularly important years later when the property is sold and the owner wants to transfer the proceeds out of South Africa.
Our advice is simple: do not regard the international transfer of the purchase price as merely an administrative step. Make sure it is correctly structured and documented from the beginning.
What Am I Signing When I Make an Offer?
Foreign buyers, particularly those familiar with the UK property market, should be aware that the South African process differs from the familiar English concept of an eventual “exchange of contracts.”
In South Africa, an Offer to Purchase signed by the purchaser and accepted by the seller will ordinarily become the binding agreement of sale, provided the legal requirements for a valid sale have been met.
The document therefore deserves considerably more attention than its name might suggest.
It may contain important provisions dealing with finance, deposits, occupation, fixtures and fittings, compliance certificates, suspensive conditions, breach and other aspects of the transaction.
A foreign purchaser should therefore consider having the proposed agreement reviewed by a South African attorney before signing it, particularly where the purchase is substantial or there are financing, immigration or cross-border considerations.
What Other Costs Should a Foreign Buyer Budget For?
The purchase price is not the only cost involved.
Depending on the transaction, a purchaser may need to budget for transfer duty, conveyancing fees and other transfer-related costs. If the property is being financed, there may also be bond registration and banking costs.
VAT may apply instead of transfer duty in certain transactions, particularly where the seller is a VAT vendor and the property is sold in the course of the seller’s business.
Foreign purchasers should also consider the ongoing costs of ownership, including municipal rates, levies where applicable, insurance and maintenance.
Understanding the total cost of acquiring and holding the property before committing to the transaction helps avoid unwelcome surprises later.
What About South African Tax?
Buying a property can also create South African tax considerations.
These become particularly important if the property is going to be rented out, held as an investment or eventually sold. A non-resident may have South African tax obligations arising from South African source rental income, and the disposal of South African immovable property can have capital gains tax consequences.
There are also special withholding provisions that can apply when a non-resident sells South African immovable property.
The tax position will depend on the purchaser’s circumstances, residence and how the property is owned. Where necessary, specialist tax advice should therefore form part of the planning process.
Should I Buy in My Own Name, a Company or a Trust?
There is no single structure that is right for every foreign purchaser.
For many buyers, personal ownership may be the simplest solution. In other circumstances, commercial, tax, succession or estate-planning considerations may justify considering a company, trust or another structure.
The important point is to consider this before the property is purchased. Restructuring ownership after transfer can result in additional costs and potential tax consequences.
What Happens to My South African Property When I Die?
This is easily overlooked when the excitement is focused on buying the property.
A foreign owner of South African property should consider how that asset fits into their broader estate plan. Questions can arise regarding South African estate administration, estate duty, wills and how South African assets interact with wills or estate planning arrangements in another country.
This is particularly relevant for couples and families who own assets in more than one jurisdiction.
A property purchase is therefore a good opportunity to review whether your existing estate planning arrangements adequately deal with your new South African asset.
Property and Immigration Should Be Planned Together
For someone buying purely as an investment, immigration may have little relevance. For the person buying a home because they intend spending several months each year in Cape Town, retiring in the Winelands or relocating their family to the Garden Route, it can be fundamental.
That is why at BDP Attorneys we increasingly see foreign property ownership as part of a broader legal picture.
We assist foreign individuals, families and investors with the legal and conveyancing aspects of acquiring property in South Africa, while also considering the immigration implications of their intended stay. Where specialist immigration processing is required, we coordinate with experienced immigration professionals so that the different elements of the client’s plans can be addressed together.
Is South Africa Worth Considering?
I return to where I started.
Property decisions are personal. Spain, Portugal, France and other popular destinations each have their attractions, and South Africa will not be the right choice for everybody.
But international purchasers looking at what £250,000, £500,000 or £1 million might buy them should perhaps widen their search.
South Africa offers extraordinary property in extraordinary locations, together with superb food and wine, an outdoor lifestyle and, for many international buyers, exceptional value.
Just make sure that while you are deciding where you want to live, you also obtain advice on how you are going to buy, fund, own and enjoy the property and, if you intend making South Africa your home for part or all of the year, on the immigration arrangements that will allow you to do so.
