Dining Room with English Oak Table.

• 1. Conveyancing Process
• 2. Voetstoets
• 3. Role of the Conveyancer
• 4. Sectional Title
• 5. Purchase Costs
• 6. Finance
• 7. Taxation
• VAT
• 8. Income Tax
• 9. Capital Gains Tax
• 10. Exchange Controls
• 11. Repatriation of Funds
• 12. Ownership Structures
• 13. Ownership Options
• Individual Ownership
• Group Ownership
• Syndicate Ownership
• 14. How to structure the purchase

European Georgian Villa Style House.

The registration of the property transaction is performed by a legally qualified specialist in property transfers, known in South Africa as a Conveyancer. The Conveyancer is normally appointed by the seller and charges a set scale of fees and charges. However the buyer pays the Conveyancer charges.

The seller will also appoint an agent to market the sale that should be registered with the Estates Agency Affairs Board. Every registered estate agent is issued with a Fidelity Bond Certificate and must comply with the Code of Conduct laid down by the Board. The seller pays the estate agents commission.

For the sale of ownership of immovable property to be legally binding, a written contract must be entered into, and contain the information required by the law.

When both buyer and seller sign this contract it will become legally binding on both parties and neither party may then withdraw from the contract without incurring legal consequences.

Therefore, the decision to sign such a contract requires careful thought and consideration and we recommend that the prospective purchaser obtain independent legal advice before the contract is signed.

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Most immoveable property is acquired by way of private treaty. The seller and the buyer enter into an Agreement of Sale, which sets out the conditions and terms under which the property is purchased.

Aside from including the most obvious terms, such as the description of the land, the purchase price and the list of fixtures and fittings, the Agreement for Sale will also deal, inter alia, with how the purchase price will be funded and when it is payable.

In the event of the buyer requiring a loan to fund the purchase, then the Agreement for Sale will normally be subject to the buyer obtaining the loan within a specified period.

Should the purchaser not obtain the loan required to complete the purchase within the specified period then the agreement will lapse.

When a loan is raised in South Africa then the financial institution that grants the loan will normally require a mortgage bond to be registered over the property in order to secure repayment of the loan.

2. Voetstoets
Most property in South Africa is sold ‘voetsoets’. This standard inclusion in most Agreement for Sale documents means that the property is sold ‘as is’ in the condition in which the property is found.

It is the obligation of the purchaser to thoroughly inspect the property before entering into the contract for sale, although any defects that are purposely concealed by the seller will not be covered by the “voetstoets” clause as this, in effect, constitutes fraud. It is not normal to undertake property surveys, but this may be arranged and if required, should be included as a condition of purchase.

Ideal Family House, Parktown North, Johannesburg.

A deposit is normally required by the seller to secure the property. The Conveyancer will hold secure any deposit paid in trust. The deposit will be normally be held in an interest bearing trust account for the benefit of the purchaser.

Once agreement to purchase has been reached and the Contract signed by both parties, then the conveyancer takes responsibility for preparing and completing the legal documentation that is required for the Deeds Registry to record (register) the change of ownership of the property. It is only when the Registrar of Deeds countersigns the ‘Deed of Transfer’ that ownership of the property is transferred into the name of the purchaser.

Additionally the conveyancer ensures that all other elements of the transaction are in place to allow the transfer to take place;

• That any outstanding rates due are paid
• That transfer duty or VAT as applicable is remitted
• The commission due to the Estate Agent are paid

Most importantly the conveyancer will ensure that the monies required to meet all the elements of the transaction are in place at the date of the transfer.

This element of the role of the Conveyancer must not be understated due to the complication of Exchange Control Regulations and the customary requirement for a guarantee to be in place in respect of the balance of the purchase price.

Lovely Upmarket House Durban North

Sectional Title is a method of owning a unit in a building or buildings in a freehold title registered in the Deeds Office. When you buy a unit in a Sectional Title scheme you own a unit consisting of your flat or house together with an undivided share of the common property of the scheme. You may also be granted exclusive use of a portion of the common property eg. a parking bay.

Each owner is obliged to maintain his Section and the Body Corporate is responsible for the common property. All the areas of the property that are not part of your Section are known as the Common Property. These may include stairways, entrance foyers, driveways or gardens. The Body Corporate is a collection of all the registered owners of units in the scheme and together they will appoint Trustees to manage and control the scheme on a day-to-day basis. The Trustees will quite often appoint a professional managing agent to undertake the important management duties.

The Trustees are obliged to administer the Levy Fund to pay for the expenses of the Body Corporate in managing the property. Each owner is obliged to contribute a monthly sum to the Levy Fund to enable the Body Corporate to meet these expenses. Each owner contributes in accordance with their participation quota or size of their unit in relation to other units in the scheme.

Ownership of a Sectional Title unit is often cheaper than a property held on a freehold basis and can provide you with a number of advantages as security and maintenance as the costs are shared between all the members of the Body Corporate.

The Body Corporate will also establish rules to enable each owner to enjoy their property and lice in harmony with other owners in the scheme.

5. Purchase Costs

The Seller will normally be responsible for: -

• The Estate Agents Commission
• Provision of a Beetle-Free Certificate
• Provision of a valid Electrical Compliance Certificate

In addition to the actual purchase price of the property, the buyer will incur costs for the following: -

• Transfer Duty
• Legal Fees based on a laid down tariff
• Mortgage Valuation & Arrangement Fees
• Conveyancing Fees & Deeds Registering Fees according to a statutory tariff
• Fees for any survey commissioned by the purchaser

Additional Costs related to the purchase: -

• Rates
• Levies – payable to homeowners association on most golf estate
• properties and on all sectional title units

6. Finance
Mortgage Finance to assist the purchase may normally be raised in the UK or in South Africa. A UK resident raising a mortgage in South Africa to purchase property in South Africa may borrow up to a maximum of 50% of the purchase price.

The loan will be arranged in ZAR and subject to an interest rate related to the Prime Overdraft Rate applicable.

The maximum term of the loan is normally 20 years.

The obtaining of financial assistance should be included in the Agreement for Sale as a condition where the sale is subject to receipt of the financial assistance.

Financial Assistance may be raised in the UK secured on UK property and therefore UK interest rates will be payable on the loan.

However the purchase of the property is funded: from own resources, finance raised in the UK, finance raised in South Africa or a combination of these, the purchaser will need to consider carefully the impact of Taxation, Exchange Controls and Repatriation of Investments introduced into South Africa in deciding on the best approach to take.

The most appropriate method to fund the acquisition and the ownership structure will depend on the circumstances of the individual and their future plans and expectations.

There are a number of options for the prospective purchaser to evaluate in order that they may decide on the most appropriate option for them.

We will be pleased to fully explore these issues with our clients and assist them to identify the right balance of risk and security that meets their needs and to assist them in structuring the purchase according to their preferences.

We would always advise our clients to seek independent advice on a purchase of this nature from parties with intimate knowledge of the issues.

7. Taxation

• VAT
  The current rate of VAT is 14%
• Transfer Duty
  Transfer Duty is payable on the purchase of property and is payable by the purchaser.

Transfer Duty is calculated as a percentage of the purchase price dependent on the legal status of the purchaser.

• transfer to a corporate entity or trust – 8%
• transfer to a natural person, sliding scale from 0% to 8%

8. Income Tax
The South Africa income tax system is revenue based which means that income earned in South Africa is subject to ordinary income tax.

Therefore, any rental income generated from property in South Africa will be subject to income tax and it is the responsibility of the non-resident to register as a South African taxpayer.

9. Capital Gains Tax
Non-residents of South Africa are liable to pay Capital Gains Tax on the disposal of;

• Immovable property situated in South Africa, including any right or interest in immovable property
• Assets of a permanent establishment on a non-resident through which trade is carried on in South Africa

Capital Gains Tax is payable in the tax year in which the asset is disposed of and is calculated by “adding “ 25% of the gain to the income for that tax year and then taxing that income at the marginal rate of tax applicable to the individuals income earned in South Africa.

The actual method of calculation to be applied on disposal of property depends on the legal entity that has ownership of the property, for example;

• Owned by an individual or a syndicate
• Owned by a South Africa Resident Company
• Owned within a Trust

Holiday House, Game Reserve, KwaZulu Natal.

These are neither onerous nor over-restrictive for a non-resident wishing to purchase property, but it is important that the correct procedures are followed.

Prior to purchase we would ensure our clients are provide with a full explanation of the current Exchange Control Regulations from a specialist consultant.

11. Repatriation of Funds
Subject to the correct endorsement of funds or securities introduced into South Africa to facilitate the purchase of property being correctly endorsed and approved by the Reserve Bank of South Africa, then the funds introduced and any profit generated from the sale may, on the whole, be repatriated following the sale of the property.

Proof must provided that the funds physically came into South Africa from abroad so that the funds and profit may be released.

12. Ownership Structures
A UK resident who has decided to purchase property in South Africa has a number of options about how the legal ownership may be structured.

These include:

• Ownership in the name of an individual or a syndicate
• Ownership held by a South African resident company
• Ownership held by a non-resident company
• Ownership within a Trust within South Africa
• Ownership within a Trust elsewhere

13. Ownership Options
There are three types of ownership available:

• Individual Ownership
  You are buying the house for yourself or your family. We will help you with the whole process of purchasing in South Africa and ensure the whole experience goes smoothly.
• Group Ownership
  You and a group of friends, colleagues or associates decide to buy a property together. You nominate one from your group to steer the project, we manage the purchase process with that person.
• Syndicate Ownership
  You would like to own part of a property with others. You don’t have a ready-made group of associates; therefore we create a group, putting you together with like-minded buyers, we then manage the whole process.

14. How to structure the purchase
Selecting the most appropriate legal ownership structure to provide the most tax effective vehicle whilst ensuring optimal security of the investment and future saleability requires careful evaluation and is dependant on the investment objectives and future plans of the purchaser.

Our experience has shown that the most probable vehicle to acquire the property in South Africa that would meet the needs of a UK resident would be a South African Resident Company (SARC) i.e. a company registered in South Africa.

The ultimate ownership of the shares in SARC would be arranged to meet the requirements of our client.

Our objective is to assist our clients to be fully informed of the available options that they make the correct decision about their ownership structure, in order to minimise the impact of taxation and maximise their investment returns.

Please note: this document has been written with a view to introducing persons, unfamiliar with the South African legal system, to the South African system of land ownership. It should not be taken as legal advice per se.

We always advise our clients to take the appropriate legal and financial advice, from those qualified to do so, before they make a commitment to purchase property or take out financial instruments to assist in such a purchase.