6 Things Foreigners Need to Know When Buying Property in South Africa

6 Things Foreigners Need to Know When Buying Property in South Africa

Buying property can be an exciting endeavor. It might perhaps be somewhat daunting if you're a first-time home buyer.

Current favorable exchange rates in South Africa make buying property even more appealing for foreigners (which tend to be non-residents). 

As a foreigner, whether you're a natural person or legal entity registered outside South Africa, you can purchase property (within certain limits), but one has to make sure to find out what's possible within the legal framework of the country. 

Any property investment made by foreigners in South Africa, which gets sold later on, whereby they would like to transfer these proceeds out of the country, will see local tax laws on that country be applied. Property investments by non-residents won't be subject to South African tax laws. 

As a foreign buyer (or non-resident) looking to purchase property in South Africa, you may want to read up on the following points:

#1 - How does exchange control affect buying property in one's own name in South Africa?

Any monies used to purchase a property in South Africa, and any subsequent profits upon selling, can be transferred out of the country. Any applicable Capital Gains Tax (CGT) will be deducted by the conveyancing attorneys upon transfer. Please note that the title deed needs to be endorsed as "non-resident".

#2 - Would a fixed or variable interest rate home loan be preferable?

One of the important decisions to make as a home buyer will be to decide on a fixed or variable home loan product. 

Variable interest rate home loans are by far the most popular option in South Africa. Given you're linked to the Prime Lending Rate, these might be more or less expensive over time.

Fixed interest rate home loans do guarantee the same interest rate for the term of the contract, but are quite shorter than the standard variable loans (i.e. 5 years instead of 20-30 years), and can easily be 1-2% more expensive as well.

#3 - Once I pay a deposit, how will I know that money is safe? 

Any deposits made by the purchaser will be held in an interest-bearing trust account by the conveyancing attorneys. Any interest will be earned until the property changes ownership. 

In the event the transaction falls through, the deposit (plus interest) will be returned to the purchaser, whereby some small administration fee might be deducted from the interest earned.

#4 - If I opt to purchase the property subject to getting a bond, what could I apply for and what would be its terms? 

All major banks in South Africa offer home loans to foreigners (non-residents) given certain conditions. 

The finance amount will mostly be around the 50%-level of the purchase price, whereby the  remaining balance will need to be in cash (likely transferred into South Africa). Furthermore, any such home loans given to foreigners will be subject to approval by the South African Reserve Bank.

#5 - Can't I just get a home loan in the UK for the purchase of a property in South Africa?

Currently, it's unfortunately not possible to mortgage a South African property in the UK.

#6 - In the event the property I buy stands empty for six months of the year, how can I protect it and would certain insurances be required?

Whereas household insurance will be a must, due to the extensive period of time whereby the property might be unoccupied, the insurance companies will charge an extra risk premium to ensure coverage of the associated risks.

Furthermore, the terms and conditions put forward in the insurance policy might dictate that a number of minimum security requirements are met, such as burglar bars on windows, Trelli-doors at the entrance, and even radio-linked alarm system with armed response.

In Conclusion

All-in-all, the above should give you a good idea what to expect when buying property in South Africa as a foreigner (non-resident). It is advisable for any buyer to use the services of a bond originator who will shop on their behalf (for free!) at all the local South African banks and do the necessary home loan comparison for their client. One bank might be prepared to do a larger loan at a more expensive rate, while another might be cheaper but be reducing the home loan amount.