Buying Property in South Africa

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Buying Property in South Africa - Buyers' Guide

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South Africa - Buying Guide

The property buying procedure in South Africa is similar that of the UK & Europe and non-residents can buy their South African dream property without restrictions.

You will be glad to know that unlike in some countries, estate agents in South Africa are subject to a strict code of conduct and must be fully qualified, as well as members of the Estate Agentu2019s Board to be allowed to practice.

However, whoever you are buying your property in South Africa through, make sure you are aware of the local market prices as you could pay over the odds, particularly in popular areas.

The buying procedure in South Africa is relatively straightforward and you can own freehold title to your property, although sectional title or share block ownership systems are other options:

Sectional Title: the most usual way of owning a property in a community development such as an apartment block or a gated community.

Make sure you know what the developmentu2019s rules are before you buy and be clear on issues as pet ownership or other community regulations.

Share Block: a system whereby a company owns the land and individuals own shares in the company.

This method of ownership is losing popularity as it is not as secure as sectional title, causing many previous share block developments to convert to sectional title.

Time Frame

A cash purchase normally takes approximately 6 weeks. When a mortgage is involved, the procedure will take around 2 months.

The Procedure

If you are purchasing property in South Africa, expect to take the following steps:

Step 1  The purchase price is agreed and you pay an optional deposit.The agent deposits this into an interest account for the buyer.You sign the Agreement of Sale which details the price, property details the date of transfer and who pays the Transfer Duty.

Step 2  Apply for a mortgage if necessary.

Step 3  Once funds are agreed, an Entomologist and an Electrician will inspect the property and issue the relevant Clearance Certificates.

Step 4  The lawyer draws up documents (such as a Power of Attoney and Transfer Duty Declaration) to enable the transfer to take place and he/she also obtains a Rates Clearance Certificate from the Municipality, to ensure no debts are owed by the present owner.

Step 5  Transfer Duty is paid to the Receiver of Revenue and a receipt is obtained.

Step 6  All the above documents are inspected by the Deeds Registry and if they are in order, the transfer is ready to go ahead.At this stage, you will need to have all the funds ready for the sale transaction.If they are unavailable, registration will be postponed for no more than five days, after which the deeds will be rejected and need to be re-lodged.

Step 7  A legally qualified conveyancer handles the registration of the property.From the time of transfer, all former mortgages are cancelled and the new mortgage is registered.

Mortgages

The mortgage, or bond market as it is known in South Africa, is well-developed and similar to British and European products. However, one big difference is that self-certification mortgages are not generally available.

Non-residents who are new to the South African property market are restricted to borrowing 50% of the purchase price and the remaining balance must be brought into the country through the South African Reserve Bank. Once this is officially recorded as received, a mortgage for the 50% can be raised.

Variable rate mortgages are the most commonly used mortgage products in South Africa.As the interest rate fluctuates, this type of mortgage benefits buyers who believe interest rates will go down rather than up, as is currently believed to be the case.

Fixed rate mortgages, in which the interest rate remains steady for an agreed term, are often more expensive.However they are beneficial in a market where interest rates seem to be on their way up.

Step-down or reducing rate mortgages make the interest rate decrease for an agreed period of say, 5 years, regardless of whether rates go up or down.

BA SAFEX linked rate mortgages are set by an association of South African banks. This loan guarantees a fixed rate for three months, and the rate will change every three months in accordance with current lending rates.

Be aware that the last two loan types are subject to stringent criteria and are not always available to every property purchaser.

Surveys

Surveys are available for those who wish, but it is rare to have one done in South Africa.

Certain safeguards do exist to ensure your property is safe:The seller must provide a valid Electrical Compliance Certificate to prove the propertyu2019s electric installations meet national safety requirements.  another requirement is a Beetleu2013Free Certificate to ensure your property is free of infestation from harmful beetles.

Voetstoets is standard in the Deed of Sale and means that the property is sold u201cas seenu201d, ie. you, the buyer, accept the property in the exact condition you see it in. However the seller is legally obliged to disclose to you any known defects prior to the sale.

Costs

Buyers must expect to pay Transfer Duty and fees, their lawyeru2019s fees, mortgage arrangement fees, Deeds Office levies, pro-rata rates and taxes, and Rates Clearance Certificate costs. All these costs normally amount to an additional 5 to 8% on the purchase price.

If the property is new, you may also have to pay for the electrical and water installations, so be sure to ask your builder to confirm this in writing before signing any agreement.

Unless an alternative arrangement is made, the seller pays the following costs; estate agentu2019s commission (either fixed or up to 7.5% + VAT), Entomologist Certificate, Electrical Compliance Certificate, cancellation fees for any existing mortgage on the property.

Taxes & Duty

Transfer Duty is payable by the purchaser at the following rates:

• No duty up to ZAR 500,000 of the purchase price
• 5% (ZAR 25,000) ZAR 500,001 u2013 ZAR 1,000,000
• 8% from ZAR 1,000,001

Property Tax, otherwise known as annual Municipal Tax, is charged for local services and will vary according to region.

Tax on rental income from South African property is charged to non-residents and it is up to you to declare your income by registering as a South African tax payer. The tax threshold is ZAR 43,000.00 and ZAR 69,000.00 for over 65s.

Capital Gains Tax (CGT) must be paid by non-residents when selling their property and this is added to their income tax bill.However residents are exempt from CGT on the first ZAR 1.5 million on the sale of a principle residence.

Repatriation of Funds

You can repatriate the full proceeds of the future sale of your property by showing the Deed of Transfer together with the subsequent Deed of Sale, as proof of the amount originally brought into South Africa and the profit made upon sale. Your Title Deed will need to have been endorsed to confirm you are a non-resident.