A Foreigners Guide: Investing in Property in Cape Town
A Foreigners Guide: Investing in Property in Cape Town
Earlier this year, we held a seminar with Cape Town's financial and legal industry leaders, to dispel all the foreign investment myths that may be holding you back from your perfect purchase. There to represent multiple facets of the world of real estate were Liezl Solomon from STBB Law Firm, Yvonne Viljoen from ooba Homeloans, leading Mortgage Originator and Cheryl Sanger from Incompass. We've summarised the key findings below, to keep you well-informed and up-to-date.
Myth 1
I cannot get a bond if I am a foreigner
Non-Residents
When it comes to a non-South-African resident's application, you are able to get a bond however, the maximum Loan to Value (LTV) you will qualify for is 50%. Your deposit has to come from your overseas bank account. In addition, in order to ensure Foreign investment Approval for transaction of property, the South African Reserve Bank will need evidence that 50% of the purchase price has been introduced from your (foreign) bank account. Remember that you will need a valid passport (i.e. not expired). In order for the bond instalment to be paid as a debit order, you (aka the non-resident) must open a South African bank account for non-residents.
Temporary Resident (leave the table in) falls under bond
You are a temporary resident If you are a foreign national who holds a valid work permit as well as hold an approved application for temp residence from the Dep. of Home Affairs, as endorsed in your passport. A temporary resident is treated as a South African citizen for the purposes of lending. Remember that you (the applicant) must have a valid passport (not yet expired) and a valid temp residence permit that has a future expiry date.
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Non Residents / In SA on Spousal Permits |
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SA Citizens working and residing abroad |
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Foreign Applicants residing in SA on either a work permit, permanent residency or temporary residency i.e. "Foreign National" |
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Myth 2
Tax is difficult
Tax is not difficult if you have the right people to support you.
While tax is a necessary evil, there are ways to make it less daunting in your property experience, starting by educating yourself on the essentials.
As a non-resident, you are only liable to pay income tax in South Africa on income resulting from a South African source. This would include the likes of profit gained from letting fixed or other property as well as the capital profit gained from the disposal of a capital asset (capital profit). There is a clear distinction between normal income and the income of a capital nature. Income that is made through a scheme of profit-making is considered normal income. This would include salary or rental income that is 100% taxable. This is different to the sale of a capital asset, which brings about a capital gain that is taxed differently.
As a non-resident realising a profit from the sale of fixed property or any other income from a South African source, you must register as a non-resident taxpayer in South Africa. You will then be required to submit a tax return during the appropriate tax filing season to declare the income to the South African Revenue Services ('SARS') and to make payment in accordance with the assessment raised by SARS.
Myth 3
Once I put money into South Africa, I cannot get it out
South Africa is a popular destination for foreigners to buy property but unlike other countries, exchange controls will play a big role in your purchasing process.
Bringing money into South Africa to buy property is one of the most important challenges you will have to overcome as a foreigner. Here is the need-to-know information to help you ensure that you can transfer your money back overseas, if and when you want to.
When can I take my money back out?
- When you buy property in your own name: Money may be returned to your own country together with any profit on the resale of the property. The profit will be liable to a deduction of any Capital Gains Tax due. The title deed of the property must have been authorised 'non-resident'.
- Where you decide to buy property through share ownership in a company or as a beneficiary in a trust: Where money has been brought into South Africa to acquire shares in a company or members interest in a close corporation, your money may be returned to your own country together with any profit on resale. Once again it is important that these securities have been authorised 'non-resident'.
- Funds introduced into South Africa as a foreign loan to fund acquisitions of corporate entities, which own property in South Africa, may be returned to one's own country: This must be in line with the terms of the original loan approval by the South African Reserve Bank, so you must seek exchange control approval. Profit on resale may also be returned to one's own country and the relevant securities must have been authorised 'non-resident'.
What do I need to know when making an offer to purchase?
You will need to declare on your Offer to Purchase the entity you are buying the property in (name, trust, company etc). In South Africa, unlike some other countries, an Offer to Purchase becomes legally binding once the seller accepts. This means that there is no opportunity to amend the contract before completion or registration of transfer.
For more guidance on how to dispel all the foreign investment myths out there, get in touch with our team of experts, today.
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Bae Estates and Escapes is a real estate agency with a twist. We are a tight-knit group of young entrepreneurs on a mission to revolutionise the real estate industry through our constructive, dynamic & transparent approach to customer service. We are here to turn every touch-point of your property experience into a memorable one.
