Buying Off Plan in South Africa

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Buying Off Plan in South Africa - Buyers Guide

Buying a property in South Africa is quite similar to purchasing a property in the UK, with no restrictions placed on non-residents, who have an equal standing as nationals. The majority of properties in South Africa are sold as freehold and have individual titles.

You can also purchase property in South Africa on a sectional title or as a share block:

A sectional title is usually issued for properties within a communal development such as gated communities or apartment clocks. These sectional title properties often have certain deed restrictions in place that could include pet ownership, colour prohibitions for the exterior of properties and other communal regulations.

The share block system is not as secure as other forms of ownership and it is slowly disappearing with many share blocks being converted to the more favourable sectional title. Essentially the share block system is where the land and structure are owned by a company and the 'property owners' own shares in the company.

Estate agents in South Africa

Unlike some countries in the world, estate agents in South Africa must undergo training and pass examinations based on a strict code of conduct. They must also be registered with the Estate Agents Board which has a strict enforcement policy of the rules and regulations for both buyer and sellers. As with countries like the USA, you can have extreme confidence in your South African estate agent that they will act in your best interest.

Making an offer on property in South Africa

Once you have decided on a property, you will need to make an offer. If possible make a verbal offer to begin with because once an agreement of sale has been signed regarding the property, there is literally no backing out of the contract apart from in exceptional circumstances. In South Africa it is NOT usual to request for a survey to be done, but if you are buying an older property we suggest that you ask your agent to arrange one.

Typically properties in South Africa are sold as is 'Voetstoets' which mean that you will buy the property in the exact condition that it is shown. The seller is obliged by law to disclose any known defects at the time of sale. Proving non-disclosure of defects can be difficult so either arrange the aforementioned survey or at the very least spend as much time as possible inspecting the property prior to entering any written agreement.

The preliminary sales agreement will be signed and at this time it is normal for the purchaser to pay a deposit via the estate agent who will place this money into an interest bearing account for the buyer. The local bank will then guarantee the full purchase price at which point you must deposit the funds in to the bank or be granted a mortgage.

The contract will also stipulate the date of occupancy as well as the details for final transfer. Fixtures and fittings are normally included in the contract and will need to be specified including any agreement between the vendor and purchaser regarding terms and prices for the furnishings.

The vendor is legally obliged to provide a valid 'Electrical Compliance Certificate' ECC.

A 'Beetle Free Certificate' is not legally necessary however it is customary to show that the accessible areas of the property are not infested with beetles - typically the borer beetle which can quickly destroy a property.

Possession and Occupation

South African law requires that both the possession date and the occupation date must be written into the contract. This is in case the two dates differ from each other, then an occupational consideration - rent payable by the occupying party - can be stipulated, which is best done in South African Rands or as a percentage of the outstanding balance from the sales price

Property Transfers in South Africa

Your lawyer will perform due diligence on the property to ensure that there are no outstanding debts, liens or charges against the property.

Registration of the property must be handles by a legally qualified conveyance professional. The costs of the conveyance are normally paid by the buyer, although if it is agreed to be split between the purchaser and vendor it must be written in the agreement of sale.

Once all of the necessary documentation has been provided, the transfer will be prepared and the new title will be registered in the land registry. At this time all previous mortgages will be cancelled and any new mortgages will be registered.

It is advisable to draw up a General Power of Attorney so that you lawyer can sign contracts for you if you will not be able to be present.

South African Transfer Duties are payable on different scales:

• R500,000 = 0%
• R500,001 to R1,000,000 = 5%
• !,000,001 onwards = 8%
• These duties are payable to the Receiver of Revenue

Other Purchase Costs

You will have to pay lawyers fees, registration fees and any mortgage arrangement fees. To be on the safe side we recommend that purchasers allow up to 8% over the purchase price to cover any eventual expenses. If you are buying an off pan property you may have to pay for electrical and water installations. This should be confirmed in advance and included in the written sales contract

Income Tax in South Africa

Any rental income generated by your property in South African is liable for income tax as South Africa follows a revenue based income tax system. It is the responsibility of the non-resident to register as a South African Tax Payer. The tax threshold in place for individuals is ZAR 43,000 and ZAR 69,000 for those over 65.

Other Taxes in South Africa

VAT

Value Added Tax is charged ONLY on the estate agents fee regarding the purchase and are normally paid by the vendor. If you are buying a new off plan property in South Africa the developer will charge the 14% VAT as part of the purchase price and the purchaser will be exempted from paying transfer duties.

Annual Property Taxes

Annual property taxes are paid to local councils and can vary from region to region. These taxes are typically for garbage collection and sewerage installations

Capital Gains Tax - CGT

Capital Gains Taxes were introduced in South Africa in 2001 and are only applied to fixed property. Non-residents are liable for CGT at 25% when they sell the property when it is added to the annual income tax bill. South Africa residents do NOT pay CGT on the first 1.5 million of profit on primary residence sales.

Inheritance Tax

When CGT was introduced in 2001, Inheritance Taxes were officially abolished, however if the property owner dies, the South African authorities consider that the property has been disposed of and CGT becomes payable.

Stamp Duty

There is no Stamp Duty payable on the purchase of properties in South Africa. Stamp Duties are instead charged on rental agreements after the first ZAR 500 exemption.

Repatriation of Funds

Any funds that have been introduced into South Africa with the sole purpose of purchasing fixed property can be repatriated along with any profits accrued at the point of sale. It is essential that all of your documentation stipulates that you are non-resident.

The South African property market has once again been hit by its ninth 50 basis point interest rate hike in succession since 2006. These increases have obviously given the real estate market another dilemma it didn't need. With an estimated 25% of South African property owners hoping to emigrate and more properties on the market than at any time in recent history, there is a distinct nervousness amongst both residential home owners and the state agents that make a living by selling them.

This is good news for buyers in general as there is a multitude of options to choose from, however industry experts state that many of the property listings are being offered at inflated prices by owners who are not seriously on the market - a market occurrence that is often seen around the world when a property market has boomed for a couple of years or more.

Should interest rates level off or remain where they are now, it I may not be too long before the situation begins to change and the sellers may find the ball in their court once again. The 2010 Football World Cup is expected to bump start the market as early as the end of this year, by which time it is expected that properties will be realizing their true value.

Overseas buyers are in a good position at present with a choice of properties and the option to raise finance and mortgages in their home countries at far more appealing rates. Another consideration brought on by the recent interest rate increases is that local residents are putting off buying a property right now and are favouring long term rentals for which there is a quickly growing demand especially in urban areas close to principle employment centres. This is good news for existing owners of buy to let properties in South Africa as there are very few new developments due for completion in key areas this year.

Taking all of this into consideration, experts expect residential property values to increase by up to 60% by 2011.

Key areas for overseas investors are not being affected in the same way as the residential market, as many of the off plan developments and resort communities that are being promoted are not in major employment areas and are in many cases too far removed to make them viable locations from which to commute. These new off plan resort developments have been designed for the tourist industry

Tourism South Africa

South Africa Tourism growth is currently expected to continue growing at between 18-19% year on year. South Africa was voted in May 2007 as the 31st most popular place in the world for business visitors. Also in 2007, in the Meetings and Incentive Travel magazine, Cape Town was voted the number one long haul destination city and South Africa came in second place a the leading long haul destination country.

The 2010 FIFA World Cup will certainly not be hindering these findings and should in fact encourage even more visitors to South Africa. The Minister for Tourism Mr Van Schalkwyk stated that continued private and public sector investment into South African infrastructure will enhance the countries appeal even further.

Recent airport investment has been seen in South Africa with: ZAR5.2 billion investment in extensions at OR Tambo, Cape Town and urban International by Airports Company South Africa ZAR 2 billion investment into the construction of the new King Shaka International airport at Lake Mercy, to the north of Durban ZAR 45 million has been invested into a new terminal at Polokwane International Airport in the Limpopo province, which will cater for some 200,000 passengers each year – four times current capacity.