In the midst of growing international restrictions on foreign property investors, South Africa remains a welcoming haven to these buyers.
Victoria Lancefield
Director of Expatriate Tax and Banking Engagement
Marisa Jacobs
Managing Director
“Foreign investors can enjoy greater freedom to purchase a wider range of properties in South Africa with fewer and lower investment requirements,” says Victoria Lancefield, Director of Expatriate Tax and Banking Engagement at Tax Consulting South Africa.
However, an important condition is that they bring funds into the country correctly. “Satisfying foreign exchange controls first will ensure one enjoys a seamless investment experience afterwards,” says Marisa Jacobs, Managing Director at Africorp Treasury.
A shrinking global market
The trend towards restricting foreign property investment can be seen around the world. In many countries, this is not new but amplifies already restrictive national and provincial/state policies on property ownership by non-residents.
The reasoning often presented by these governments is that excessive foreign ownership reduces the amount of residential property available to its citizens and drives up housing prices to their detriment. It is suggested that this results in higher levels of homelessness in their country.
“Even so, substantial restrictions are also placed on investment in commercial and industrial property, as well as land,” says Lancefield.
Canada
At the more severe end of the spectrum are countries like Canada, which recently imposed a 2-year ban on foreigners buying residential property within its borders from 1 January 2023.
Although there are fewer commercial property limits at national level, many provincial constraints do exist. For example, in Saskatchewan, foreigners are restricted to 10 acres of farmland.
New Zealand
In 2018, New Zealand banned all foreigners from buying local real estate.
In the same way, strict rules regulate investment in commercial property by non-resident and overseas persons, and even local agents must obtain government consent before buying on behalf of a foreign investor.
Australia
Although foreign investors may buy property in Australia, they must seek approval from the country’s Foreign Investment Review Board (FIRB) and face restrictive regulations on what and how much they can own, whether residential or commercial.
For example, new housing developments are capped at 50% foreign ownership to ensure there is sufficient stock for Australians.
In addition, from 1 January 2023, penalties have been doubled for foreigners who break residential property investment laws.
Mauritius
Even Mauritius, which actively encourages foreign investment in property, places certain constraints on residential property acquisition by non-residents.
Business property investors may be required to obtain special approval from the Prime Minister and Economic Development Board (ECB). They must also provide substantial supporting documents and are limited in the use and disposal of the property, as well as the business activities of the owning company.
These are just four examples of how foreign property investment is being limited in many countries around the planet. This is in stark contrast to South Africa, where overseas and foreign investors are considered no different from resident investors.
Investing in South Africa
Foreign investors are not currently restricted in the type or amount of property they may invest in. They can even buy property remotely over the Internet, without ever setting foot in the country.
Property development is on a continuous rise in South Africa, so there is no shortage and foreign investment is not a concern, rather it is welcomed for economic growth. South Africa is reputed to have one of the best deeds registration systems in the world, making ownership easy, safe and secure.
According to Carl Coetzee, CEO of BetterBond, South African property remains a good investment for foreign buyers, in spite of economic upheavals. “South Africa’s housing market was able to weather the pandemic, showing resilience as a valuable asset class,” he says.
Instead of declining as expected, house price inflation increased, and the low prime lending rate of 7% made it easier for first-time buyers to invest in property.
With travel restrictions lifted, overseas buyers are once again seeing the investment potential of SA’s property market. This is due to the country’s attractive lifestyle, variety of properties, and good value for money compared to other markets with strong currencies. Hybrid working arrangements have also made it possible for people to live and work in South Africa either permanently or part of the year.
According to Lightstone statistics from 2021, Gauteng is more popular than Cape Town among foreign buyers. However, the Western Cape leads in property development, with Statistics SA reporting building plans worth close to R35 billion approved last year.
Cape Town is also Africa’s top spot for fintech investment and is named by travel experts as one of the 50 must-visit cities in the world. The city is considered the most affordable market for prime residential property and offers more space for money compared to other popular destinations.
“For example, USD 1 million buys just over 30 square metres of real estate in London and New York but 202 square metres in Cape Town,” says Coetzee.
Worth knowing
Non-residents may buy property in their own name or through a foreign company. In the latter case, that entity must be registered in South Africa as an external company and, if its shares are owned by a non-resident, it must appoint a public officer who is a South African resident.
When property is disposed of, the profits from the sale attract capital gains tax (CGT). Foreign investors must therefore register as taxpayers with the South African Revenue Service (SARS) in order to sell their real estate.
“South Africa does not use a flat rate for CGT like many other jurisdictions, so it is important that investors understand how capital gains are taxed here,” says Lancefield.
South Africa does not offer any visa-by-investment schemes, so a visa is not required to buy real estate. However, to live in their property, non-residents need to apply for one of several visas to enter the country, such as a business, work or retirement visa. This may seem inconvenient, but it means they don’t need to finance a large upfront payment that visa-by-investment schemes usually demand.
Lastly, foreign investors are subject to the same fees, costs and regulations as resident buyers, such as transfer fees. They are likewise legally bound by the contract but can sign the agreement in their own country before a Notary Public or at a South African embassy, depending on their region’s legal requirements.
Banking and foreign funds
Foreign investors may use their own funds entirely to buy a property or augment them with a limited loan from a South African bank.
To borrow from a local bank, they must first obtain a certificate from the South African Reserve Bank (SARB) verifying they are eligible for a loan. “Investors should not attempt this application without assistance as not following the process to the letter could delay their purchase,” says Jacobs.
Non-residents without work permits will not be granted more than 50% of the property’s purchase price. Non-residents holding work permits may be granted more than 50% but this is at the bank’s discretion.
Says BetterBond’s Coetzee, “Banks’ bond criteria for foreign buyers varies and they will generally only consider applicants who have banked with them over a certain period.”
However, he says, foreign buyers with an SA ID document or temporary residency could be granted a bond of up to 75% loan-to-value. If the main applicant in a joint application is the higher income earner and is an SA citizen or has permanent residency, the bank may consider a bond of up to 80%.
When applying, they must also adhere to the requirements of the Financial Intelligence Centre Act (FICA) for the purpose of preventing money laundering.
Due to the limitation on loans, investors often bring their own funds into the country to be deposited in a local bank account. If so, they should be sure to retain the deal receipt in case they want to repatriate these funds later.
These procedures are hardly restrictive to astute investors and common to many countries. “After fulfilling them, they are free to enjoy all that South Africa’s diverse residential and commercial property market has to offer,” says Jacobs.
“SARS + AI” vs “Your South African Tax”04/09/2024 - 11:11
Tax Residence Certificates for SA Expats: SARS’ way or the highway03/22/2024 - 10:05
Unveiling the Surge: The Reason for the Recent Influx of South Africans to the Netherlands03/07/2024 - 09:24
Tax Planning for Repatriation: A Non-Resident’s Toolkit to Returning Home02/14/2024 - 08:46
A Letter to the Taxman: Breaking Tax Ties02/08/2024 - 12:57
No Endgame: SARS Stalemates Taxpayers Ceasing Tax Residency