LEGAL
OVERVIEW
Property ownership in South Africa is governed
by a number of well-established laws and principles
and the country has a very sophisticated property
ownership system.
For foreigners (non-residents) there are no restrictions
on property ownership. Given the exceptionally
high quality of residential properties available,
the attractive climate, the aesthetic beauty of
many areas of the country, and the affordability
of property in general, South African property
is becoming increasingly popular amongst private
buyers all over the world.
As in any country, certain properties represent
excellent investments, not only because of the
above factors, but because the demand for quality
properties, both locally and internationally,
has been a constant trend for many years.
There has been increasing international interest
in quality residential properties in South Africa,
especially since 1994, when the country abandoned
Apartheid and became one of the most enlightened
democracies in the world. Appreciating the importance
of foreign investment in all economic sectors
(property no exception) the government has maintained
a pragmatic stance on foreign property ownership,
affording foreigners the same rights of tenure
as it does its own citizens. An alien who is residing
in South Africa illegally is not allowed to purchase
property.
Property ownership in South Africa therefore
has numerous benefits, and our company is in an
excellent position to not only find attractive
properties on your behalf, but to assist you in
all aspects of your purchase.
TOP
LEGAL
CONSIDERATIONS
South Africa's property registration system requires
an accurate diagram or ground plan based on a
professional land survey and a Title Deed. This
applies to all property, other than unalienated
State land. These fundamental requirements greatly
minimise any risk of security of tenure and legal
entitlement.
Most private properties in South
Africa are owned "freehold". In most cases therefore,
the purchase of immovable property in South Africa
comprises ownership under "freehold title". Section
16 of the Deeds Registration Act is the statutory
provision governing the record of the change of
ownership of property in South Africa.
Contractual obligations, which
arise between the parties in a sale, are recorded
in a written Deed of Sale. This document must
reflect all material terms of the agreement (i.e.
what is included and excluded in the offer). A
verbal sale agreement in respect of immovable
property is unenforceable in South Africa.
There are certain pre-requisites
before a transfer of ownership can take place.
These include inter alia:-
-
An electrical certificate
of compliance, issued by a registered electrician,
stating that the electrical system on the
property meets minimum standards and requirements.
The onus is on the seller to provide this
certificate.
-
All municipal rates and
taxes must be fully paid (by the seller) and
transfer can only take place once the municipal
authority has issues a Rates Clearance Certificate.
-
In the Western Cape, and
certain other coastal areas, a "Beetle Certificate"
may be required if there is considerable wood-work
in the structure. This is important - particularly
with older houses where over time, wood-boring
beetles may have weakened wooden materials
such as floorboards. Again, the onus is on
the seller to obtain such a certificate.
In most other respects, properties
are sold "voetstoets" - a local expression meaning
"as is" and the common law principle of "Caveat
Emptor" prevails. Laws do, however, govern aspects
of "patent' and "latent" defects - especially
with regard to new constructions being sold by
developers for the first time.
TOP
THE
ROLE OF ESTATE AGENTS
While the transfer of ownership is relatively
straightforward, it relies on a considerable number
of documents and legal requirements, which are
best handled by a professional and experienced
estate agent. Foreign buyers are therefore strongly
advised to appoint a local agent who knows and
understands the law, and the procedures necessary
in securing transfer.
Estate agents can act on behalf
of sellers and buyers, and generally speaking,
there is no distinction between estate agents
being "seller" or "buyer" agents. Most adopt both
roles. In general, commission payments to estate
agents once the transaction is concluded, is payable
by the seller and is calculated as a percentage
of the transaction price.
Estate Agents will assist in
the drafting and submission of a formal written
"Offer to Purchase", in which the terms of the
offer, and any conditions of the buyer and exclusions
of the seller are noted. When the seller agrees
to the offer and signs it, it becomes legally
binding on both parties. "Gazumping" (Allowing
the seller to keep options open should a better
offer be made) is not allowed, and once a seller
accepts an offer (by signing the offer) he / she
is legally obliged to honour it.
Suspensive clauses do exist and
usually relate to the buyer's capacity to raise
funds to pay for the property (or to provide guarantees).
There is normally a time frame
applied, where the seller is required to indicate
acceptance of the offer by a certain time and
date. If the offer is not signed by this date,
it expires. Naturally, an offer may be extended
or modified by negotiation, but this has to be
done before it is finally signed by both parties.
TOP
THE
ROLE OF PROPERTY CONVEYANCERS
Title to property is transferred by the Deeds
Office and the law requires that a qualified legal
conveyancer conducts this process. Not all lawyers
are conveyancers. The purchaser has the right
(but not an obligation) to appoint a conveyancer
of his / her choice. Reputable Estate Agents can
assist in the appointment of a qualified conveyancing
attorney, if desired.
Conveyancers work closely with
the Estate Agent is gathering all the necessary
documentation and making sure that everything
is in place before these documents are lodged
with the Deeds Office.
The Deeds Office takes between
two and three months (currently) to process the
documents and issue the Title Deed to the new
owner. The process can be quicker if all docmentation
is accurate and complete, and there are no (or
fewer) complicated aspects of the transfer.
The Conveyancing Attorney will
receive the Title Deed, and pass this on to the
new owner, or in the case where mortgage finance
has been secured, lodge it with the financing
institution (bank) for safekeeping. Where property
purchase is not financed, the new owner will be
handed the Title Deed. This is a precious document
and it is advised that it is kept in safe custody,
either with a lawyer, or with a financial institution,
or other organisation which has the capacity to
store the document safely.
TOP
THE
COSTS OF PROPERTY TRANSACTIONS
Costs payable by the purchaser:
The purchaser pays transfer duty
to the South African Revenue Services in the form
of a once off Real Estate tax. If the property
purchased is registered in the name of a company
or close corporation, the transfer duty is 10
% of the gross purchase price of the property.
If the purchaser is a natural
person and registers the property in his own name,
the transfer duty (property tax) is calculated
on the gross purchase price of the property at
the following rate :
-
on the first R60 000 - 1%
, plus 5% on the amount between R60 001 -
and R250 000 - and 8% on R250 000 - upwards.
These percentages are fixed by the South African
Revenue Services ;
-
should the seller be registered
as a vendor for VAT , the seller may build
14% into the purchase price and the purchaser
will be exempt from transfer duty ;
Note : The seller could be a (Pty) Limited
or any other legal entity registered for VAT.
-
the purchaser also has to
pay transfer costs directly to the seller's
conveyancer for passing transfer and attending
to the formalities ;
-
Transfer costs (legal and
registration costs of the transfer) amount
to approximately 0.81% on a gross purchase
price of R500 000 - 0.58% on a gross purchase
price of R1 million and 0.36% on a gross purchase
price of R 2 million. These charges are not
a fixed percentage of the price and may vary
slightly according to the rates set by the
conveyancer who does the transfer but the
difference is minimal.
When purchasing a property, the
purchaser is normally required to pay the purchase
price and costs in three stages :
(i) 10% of the gross purchase
price is normally payable as a deposit to the
Real Estate company on signature of Deed of Sale
by both parties. This amount is held by the Real
Estate company in their trust account, pending
registration of transfer and interest accrued
to the purchaser (or the seller if so stated in
the Deed of Sale);
(ii) the balance of the purchase
price is lodged with the conveyancer just prior
to transfer;
(iii) the transfer duty and
legal costs are payable approximately four weeks
prior to the date of transfer so that lodgement
of the relevant transfer documents for examination
can be effected in the Deeds Registry. The balance
of the purchase price plus any occupational rental
and share of the current years rates and taxes
(levied by the local authority) will be payable
against registration of transfer.
TOP
EXCHANGE
CONTROL
At present, there are no restrictions the exchange
control regulations against non-residents bringing
capital into South Africa for the purpose of purchasing
property.
Should a non-resident later decide
to sell the property, the proceeds can be freely
transferred out of the country as long as non-resident
status is retained.
Local banks recommend that when
introducing funds for this purpose, that they
be notified for what purpose the funds are being
introduced so as to set up a record of their transfer
from outside South Africa.
-
This will facilitate the
removal of such funds at a later stage if
the party is to sell the property and repatriate
the proceeds to his / her home country. The
non-resident will merely be required to exhibit
the Deed of Transfer for the property and
the subsequent Deed of Sale for the re-sale
of the property.
-
This should be proof of
the amount originally introduced from outside
South Africa and the amount realised on re-sale.
-
Property or shares purchased
by a non-resident must have the share certificates
and / or Title Deeds endorsed "non-resident".
There are several ways in which
non-residents may bring money into South Africa
to purchase property :
-
telegraphic transfer from
outside South Africa. Upon arrival of the
funds at the local bank, a non-resident account
will be opened in the client's name ;
-
cash may be introduced to the local bank
that must be converted into South African
Rand and a non-resident account opened in
the client's name. Funds transferred by telegraphic
transfer will usually enjoy a better exchange
than a cash conversion.
TOP
REGISTERING
THE PROPERTY
Once a decision is made to purchase property,
there are a variety of options relating to under
what name or entity it is registered. These options
are:
-
Individual Purchase
An individual purchaser can acquire a property
alone or jointly with other individuals. Two
or more persons may act as joint purchasers
and will be collectively and jointly liable
for the purchase costs, unless specified to
the contrary in the contract
-
Partnership
A partnership is not a separate legal entity
and does not exist apart from the individuals
constituting it. Immovable property can be
acquired and registration can be effected
in the name of partners carrying on business
in a partnership and South African Law allows
for a maximum of 20 partners.
Partners can only be held jointly and collectively
liable as long as the partnership exists.
Should the partnership be dissolved or the
estate of one of the partners is sequestrated
on insolvency, the partners will be held jointly
and severally liable in solidium for any debts
incurred during the partnership.
-
Private Company
A South African private company may have 50
shareholders. A sale to an unincorporated
private company (or company to be formed)
is void. A nominee purchaser for a company
in the course of incorporation can enter into
an agreement. Once the company is incorporated,
the purchase of the property can be ratified.
Should a company not be incorporated within
a certain period of time (usually stated in
the Deed of Sale as a cut-off date) the nominee
will normally be obliged to take transfer
of the property into his own name.
-
External Company
Within 21 days of establishing a place of
business in South Africa an external company,
i.e. a company incorporated outside South
Africa will be required to file a certified
copy of its Memorandum of Incorporation with
the Registrar of Companies. In terms of Section
324 of the Companies Act, the external company
thereafter, has the same power as a South
African company to own immovable property
in South Africa.
-
Close Corporation
1 to10 Natural persons may form a Close Corporation,
there are no shares in a CC and each member's
interest is expressed as a percentage.
-
Inter Vivos Trust
In South Africa, a duly formed inter vivos
trust created by the founder appointing trustees
to hold the assets of the trust on behalf
of beneficiaries (once registered with the
Master of the Supreme Court) can acquire immovable
property subject to the provisions contained
in the Trust Deed.
-
Joint Venture
The effect of a contract in South African
law is not dependent on the name given to
the contract. Therefore, depending on the
manner in which the contract is drawn, a so-called
joint venture may well be an ordinary partnership.
In most instances where parties co-operate
in a commercial association, they want to
avoid the risk of problems on the insolvency
of either partner and want a commercial association
other than a partnership.
Generally, a joint venture will be conducted
through the means of a limited liability company
and due consideration will have to be given
to the Memorandum and Articles of Association
to ensure that they are consistent with the
joint venture agreement.
-
Nominees
When entering into a Deed of Sale contract,
the purchaser might not have decided by what
vehicle the property is to be acquired. In
this event, the purchaser can enter into the
Deed of Sale personally and incorporate a
provision whereby he has the right to nominate
a third-party as purchaser within a specified
period, usually about 1 month. Should such
nomination not be made and accepted by the
third-party in the prescribed time, then the
purchaser is obliged to acquire the property
in his own name.
-
Purchase of Shares in
a Company or of Members' Interest in a CC
If the property to be acquired is in fact
already owned by a company or a Close Corporation
and such property comprises the sole asset
in the company or Close Corporation, the purchaser,
if that is the form in which he would like
to own the property, may acquire the total
shareholding and loan accounts in the company.
The purchaser may also buy total membership
in the Close Corporation, instead of buying
the property out of the company or Close Corporation,
thus becoming the owner of the property through
this medium. Should this be possible, transfer
duty is not payable and the costs incurred
are minimal.
It is advisable in these instances to ascertain
that the Close Corporation owes no debts,
is not bound by suretyships and / or has no
pending legal actions against it. As the new
owner of the Close Corporation, you may find
that these sorts of obligations are transferred
to you, should they exist. The Close Corporation
should be audited to establish the full nature
of any obligations or liabilities it may have,
prior to an agreement to purchase being finalised.
-
Purchase of Property in South Africa
through an Offshore Trust
An offshore trust can hold the property via
shares in a company registered in South Africa.
This company can have the property as its
only asset. The asset/s in the trust will
not form part of the Estate of the person
who transferred them into the trust. This
provides the security of knowing that they
will be held for the benefit of the person's
heirs independently of any legal considerations
in South Africa.
Your choice of the manner in which you require
the property to be registered depends on your
unique circumstances. Again, a reputable estate
agent will assist you in deciding what is
appropriate.
TOP
FINANCIAL
AND IMMIGRATION CONSIDERATIONS
The information we provide here is based on current
laws and regulations and is subject to change.
We provide this information as a quick guide,
and it is by no means comprehesive. We cannot
take responsibility for its accuracy or currency
and we advise that you consult with your bankers
for more information on foreign exchange laws
prevailing in South Africa. For immigration and
South African residence enquiries, contact the
South African Embassy or Consulate in your country,
or visit :-
http://www.gov.za/sa_overview/immigration.htm
The financial aspects of your
transaction are also governed by a number of considerations,
many of which relate to the nature of your residence
(or non-residence) status in South Africa. For
the most part, these regulations seek to prevent
financial irregularities which may arise under
various aspects of our immigration and residence
laws. For example, nationals of other countries
must declare to the South African Reserve whether
they own foreign assets and if so, give a written
declaration to the effect that they will not place
such foreign assets at the disposal of any third-party
normally resident in South Africa. You cannot
therefore, simply "swop" a fixed property you
may own in your own country with a fixed property
of equal value of a South African Citizen.
Foreign buyers may or may not
elect to reside permanently in South Africa. Their
rights of property owneship are not affected either
way. However, immigration law must be complied
with should foreigners elect to take up permanent
residence in South Africa, as such a decision
materially affects your ability to both acquire
fixed property and dispose of it later.
Comprehensive details on immigration
are available at http://www.gov.za/sa_overview/immigration.htm
Exchange Control in Respect of
the Purchase of Residential Property in South
Africa by Non-Residents
A Non-resident of South Africa
is a person, i.e. a natural person or legal entity,
whose normal place of residence, domicile or registration
is outside the Common Monetary Area, which comprises
South Africa, Lesotho, Namibia and Swaziland.
Non-residents may purchase property
in South Africa but they may not be granted any
financial assistance, eg: a bank loan, for the
full purchase price.
Non-residents may apply to the
South African Reserve Bank, via their local bank,
for a bank loan facility not exceeding 100% of
his/her "borrowing base". This "borrowing base"
is determined by the amount of money introduced
by the purchaser into South Africa to fund the
property purchase. For example, if a property
will cost R2 million to purchase, the non-resident
introduces an amount from outside South Africa
of R1 million and may then apply to borrow locally
the balance of R1 million.
When South African Reserve Bank
approval is granted, the non-resident will source
the balance from a local, registered commercial
bank, and will open an appropriate account. Standard
repayment conditions will apply, and the bank
will naturally want guarantees that the debt can
be serviced, either by repayments made from the
non-resident's home country, or by rental incomes
accrued from the property so purchased, or by
any other means acceptable to the financing organisation,
and compliant with local law.
Non-residents purchasing residential
property without mortgage bond facilities are
advised to ensure that the Title Deed is endorsed
"non-resident" so that when the property is sold
there will be no delay in transfer of the sale
proceeds abroad.
Rental income for non-residents
is redeemable to your home country provided the
authorities are supplied with a copy of the Rental
Agreement and a letter from an independent estate
agent confirming the rental price as being market-related.
TOP
CONCLUSIONS
Purchasing and owning fixed property in South
Africa is relatively straight-forward, and non
residents enjoy a high degree of legal protection
and rights. By international standards, fixed
and residential property is very affordable to
foreign buyers and the quality of these properties
is generally very high. The investment potential
of quality property in South Africa is excellent.
Geographical distance however,
is often a major concern for foreigners, who must
rely on local agents and consultants to act on
their behalf, both during the initial transaction
and on an on-going basis to manage the property,
particularly if it is leased or rented to a third
party.
While the real estate industry
in South Africa is reputable, sophisticated and
professional, there are in reality only a handful
of agents experienced in dealing with transactions
involving foreign buyers and sellers.
Leigh Nationlink is one of these,
and concentrates on high-value property transactions
at the upper end of the market.
Leigh Nationlink has an established
relationship with highly professional legal consultants,
Bowman Gilfillan Inc., one of the country's largest
law firms. Bowman Gilfillan Inc. itself has international
representation through offices in the United Kingdom,
and through partnerships with other reputable
law firms in many foreign countries.
Foreign clients are assured of
knowledgeable and experienced input from Leigh
Nationlink and Bowman Gilfillan Inc, in addition
to a portfolio of exclusive and exceptional properties.
TOP
|
