Buying a Property in South Africa

Why South Africa?

The now stable South African property market is proving a magnet for international investors, amongst whom are tens of thousands of second home purchasers from the UK. Attractions include the pleasant climate, beautiful scenery, low cost of living and excellent banking and shopping facilities, roads, airports and other infrastructure. The fact that South Africa is in the same time zone as the UK is another advantage (no jetlag), as is the prevalence of English throughout much of the country.

Whilst remaining some of the lowest in the world, average house prices in South Africa have trebled since 1998, making property there an appealing investment.

We hope this guide will help you decide whether South Africa is right for you.

Popular locations – an overview

House prices vary widely throughout the country. Cities are more expensive than rural areas, and beachfront properties command the highest prices.

Britons tend to favour the Cape, especially Cape Town, the wine areas and the Garden Route, despite the fact that prices there are considerably higher than in the rest of the country. The spectacular landscapes, mild climate, excellent sports and leisure facilities and established expat community are all powerful attractions. Properties on private estates are growing in popularity.

This guide can only provide a place to start. There are many resources to help with further research, including television and radio programmes, magazines, the Internet and property exhibitions, as well as estate agents in both the UK and South Africa.

Cape Town

Set against a backdrop of magnificent ocean and mountain views, lively, sophisticated Cape Town is South Africa’s legislative capital and an important centre for business and commerce. World-class hotels, exciting shopping and entertainment venues and numerous visitor attractions combine to make it a popular tourist destination as well.

Every type of residential property is available, from luxury villas with ocean views to lock-up-and-leave apartments in the city’s new residential marina to traditional Cape Dutch houses.

Because of Cape Town’s popularity, prices in its most sought-after suburbs have more than doubled since 2002. They can be as much as 35 per cent more expensive than those in other parts of South Africa, but still offer good value by UK standards.

The Garden Route

The Garden Route stretches along the southern coast from Hermanus in the Western Cape to Port Elizabeth in the Eastern Cape, and is known for its magnificent, varied scenery, Mediterranean climate and top-quality tourist facilities. Encompassing everything from fashionable resorts to tiny villages, it includes such towns as Mossel Bay, George, Knysna and Plettenberg Bay.

Cape Town airport is easily accessed by road from the region and several Garden Route towns have their own airports, including George, Plettenberg Bay, Port Elizabeth and Hermanus.

The average price for homes along the Garden Route is around R1.8 (£165,258 sterling), considerably above the average for South Africa generally. As it is such a popular tourist destination, the rental market there is buoyant.

Private estates

Over the last five or so years, homes on private estates (including golf estates, wine estates and equestrian estates) have become extremely popular. In addition to a range of facilities, they offer 24-hour security, enabling residents to enjoy all the advantages of life in South Africa without the disadvantages of the high levels of crime and social deprivation found in some of the major cities. As a bonus, estates usually have strict regulations, including architectural guidelines, which help to protect the lifestyle and investment of all homeowners.

Estate properties in general offer a good return on investment and excellent resale values. Golf estates in particular have consistently returned some of the highest growth rates in the South African property market.

Buying a property

South Africa has one of the world’s best deeds registration systems. Property can be owned individually, jointly or by an entity such as a company, close corporation or trust.

Because of the high value placed on foreign investment, the South African government recently decided against imposing a moratorium on the buying and selling of land by foreign nationals, a measure recommended by an official panel to combat the problem of rising prices making homes unaffordable for many South Africans. The moratorium would have allowed the government time to establish the extent of foreign ownership of land, which might have resulted in new laws banning foreigners from buying freehold property.

The purchase process

Most properties are sold freehold through estate agents. The buying process is straightforward, but legal costs tend to be high.

The contract to purchase a property takes the form of an Offer to Purchase or Agreement of Sale. Once both buyer and seller have signed this, it is binding, and neither party can withdraw without incurring penalties. A deposit is not compulsory.

The main costs for which the purchaser is responsible are transfer costs. These include conveyancers’ fees, which can be up to 2 per cent of the purchase price, and Transfer Tax, a government-levied charge calculated as a percentage of the purchase price. Usually between 5 and 8 per cent, it varies according to the purchaser’s legal status.

Financing your purchase

When working out how to finance your purchase, consider all the options. Paying cash, if you can afford to do so, is often recommended, but you may not want to tie up a relatively large sum in this way.

The other options are remortgaging your UK home or arranging a mortgage on your South African property through a South African or UK lender. Remortgaging offers the easiest solution. Releasing equity in a UK home means that the second home can be purchased for cash, without the need for another mortgage. However, this may only be feasible for those who own their first home outright.

Several UK mortgage providers will lend funds of up to 80 per cent of the purchase price for second home purchase over, typically, a 15-year term.

Borrowing in South Africa

Non-residents who are in the process of becoming, or show a desire to become, permanent residents of South Africa are eligible to borrow 100 per cent of a property\'s value from local institutions. Otherwise, 50 per cent is the maximum permitted. The maximum term is usually 20–25 years.

Non-residents are not usually obliged to open a South African bank account, though some banks make this a condition of granting a mortgage bond, as it simplifies the transfer of funds into the country.

As exchange control is a complex subject, it is advisable to obtain appropriate professional advice before deciding to take out a mortgage in a foreign currency.

Taxation

South Africa levies a number of direct and indirect taxes, including Income Tax, various capital taxes, Value Added Tax (charged on most goods and services at a rate of 14 per cent), Stamp Duty, Customs Duty and Excise Duty.

Personal taxation: residents

As well as income tax, payable on worldwide income, residents must pay Estate Duty and Gift Tax, at 20 per cent, on all capital transfers concluded for no consideration or for inadequate consideration. Some exemptions are available. These rules apply to assets worldwide, except offshore assets.

For residents, Capital Gains Tax is calculated over the period in which they are regarded as a resident, even if the assets are located overseas and remain unsold.

Personal taxation: non-residents

Non-residents are taxed on South African-sourced income, including rental income earned from letting property in South Africa.

A non-resident selling a property must pay Capital Gains Tax, if applicable. Non-residents are also liable for Estate Duty and Gift Tax, at 20 per cent, on assets located in South Africa.

Since the UK and South Africa have a comprehensive Double Taxation Treaty, tax paid in one country may reduce liability in the other.

Property and local taxes

As a result of ongoing social and administrative changes, this is an area undergoing reform. New legislation is being developed to deal with fundamental local government and structural issues, including the nature of the local tax base and the scope of property tax relief.

South Africa’s economy

In part, South Africa has a mature economy based on manufacturing, mining and financial services, abundant natural resources, sophisticated financial, legal, communications, energy and transport sectors, and a modern infrastructure. However, it also has a substantial underclass of people who live hand to mouth through subsistence agriculture or the informal sector. Only Brazil and India have a greater gap between rich and poor.

Economic development is concentrated in and around Johannesburg, Cape Town, Durban, Pretoria and Port Elizabeth. Elsewhere, poverty remains, despite government initiatives, and economic and social problems, including high unemployment, crime and corruption, linger from the apartheid era. HIV/Aids infection is widespread.

Current economic policy focuses on targeting inflation and liberalising trade to increase employment growth and household income.

Money matters

South Africa’s currency is the Rand (ZAR, or simply R). The current exchange rate is R11.11 to £1.00 sterling.

Banks, bureaux de change and ATMs are available in larger towns and tourist resorts. Standard banking hours are 9:00 am to 3:00 pm, Monday to Friday, and 9:00 am to 11:00 am on Saturdays.

Major credit cards are widely accepted, as are travellers’ cheques.

The import of foreign currencies is free but must be declared. Foreign currency export must not exceed the amount declared at import. Those considering moving money overseas, either in a lump sum or to meet regular financial commitments, should consult a financial adviser or foreign exchange risk expert, who can advise on ways of reducing currency fluctuation risks.

Passports, visas and residency

Passports and visas

British nationals need a valid passport, which must be valid for a minimum of 30 days beyond their period of intended stay and have at least one page free for endorsements. An onward or return ticket, plus funds and documents to cover any further travel, are also required.

Those whose passports are endorsed British Citizen or British Overseas Territories citizen can stay in South Africa for up to 90 days without a visa.

Residency

South Africa has several categories of temporary residence permit. Subject to certain criteria, a foreign national can apply for a permanent resident permit. The holder of a permanent residence permit has all the rights, duties and obligations of a citizen, except for those that are restricted to citizens (e.g. voting rights).

Communications

Telephone

South Africa’s network is 99 per cent digital and includes the latest in fixed-line, wireless and satellite communication. State-owned Telkom, whose network covers most of the country, is the only landline provider. Call charges are amongst the highest in the world.

Mobile phone use is widespread, with over 20 million subscribers. All operators use the GSM system. Pay-as-you-go mobiles can be rented at airports.

Internet

In addition to ISP fees, dial-up connections incur per-second call charges. Broadband, only available in major urban centres, is more economical, but considerably more expensive than similar services in other countries.

Internet cafés are increasingly common in urban centres and offer reasonable rates. Some luxury hotels also offer Internet access.

And finally...

Buying property abroad is a major decision and one that should not be taken lightly. Before committing yourself, it is vital to ensure you have researched all aspects thoroughly and are in possession of all the relevant facts.

Individual circumstances will vary widely, so it is essential to obtain professional advice and guidance tailored to your particular situation, especially in areas such as property purchase, potential rental returns, taxation and mortgages.

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