Everything you need to know is included in our South Africa Property Pack
South Africa's beautiful landscapes and economic stability make it a preferred destination for foreign real estate investment.
If you're not a local resident, dealing with the property market in this area can be a bit of a maze. Be prepared for potential obstacles and surprises.
Our community of customers, along with our local experts, has reported numerous issues. We've listed them all in our South Africa Property Pack.
We’re going to take a closer look at a few of these in this article.
Is it safe or risky to invest in real estate in South Africa?
Scams can pose a significant risk in South African property transactions.
A particularly South African scam is the ‘hijacking’ of property by individuals who pose as owners and sell property they do not own. This has happened in cases where properties are unoccupied or the owner resides abroad.
Buyers must ensure that the conveyancing attorney confirms the seller's identity and ownership to avoid such pitfalls.
Foreign buyers often overlook the specific local requirements for property transactions in South Africa. For instance, the requirement for a property to have a 'Beetle Certificate' — a certificate stating the wood is free from certain beetle infestations — might seem peculiar to foreigners but is a standard stipulation in regions within South Africa.
Ignoring local regulations such as this can lead to voided transactions or additional costs.
When compared with other countries, particularly those with less developed legal frameworks, South Africa offers a transparent property purchasing process. However, the need for 'voetstoots' (as is) clauses — a common practice where the buyer accepts the property in its current state — may introduce risk, as full disclosures of defects are not always made.
This contrasts with countries like the UK, where full property disclosures are a strict legal requirement.
The South African legal system can be robust, but property disputes can become entangled in bureaucratic red tape. A case in point is the dispute resolution over land rights and ownership, which can be drawn out over years if they involve restitution claims.
The backdrop of historical land ownership issues unique to South Africa can add an additional layer of complexity to resolving such disputes.
Foreign buyers are advised to go beyond standard due diligence.
In the context of South Africa, this includes checking for any 'right to extend' clauses in sectional title units, which could see parts of communal property being developed in the future, potentially affecting the property's value and the owner's enjoyment.
The government’s involvement in the real estate sector through legislation like the Property Practitioners Act aims to regulate property practitioners and protect consumers.
However, the proposed Expropriation Bill, which seeks to allow expropriation of property without compensation in the public interest, has been a source of concern for investors who fear it could affect property rights.
The South African Reserve Bank imposes certain controls on foreign funds, and navigating these regulations can be a unique challenge for foreign investors. For example, repatriating funds can be complex if the investment was not correctly structured from the outset.
In specific terms, the situation in South Africa requires an approach that accounts for both the conventional wisdom of real estate investment and the particular dynamics of the local context.
From checking the authenticity of 'title deeds' with the Deeds Office to understanding municipal bylaws on building regulations and heritage protection zones, the process is fraught with intricacies that demand a high level of local expertise.
Buying real estate in South Africa can be risky
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Potential real estate buying mistakes in South Africa
The issue of "rates clearances"
When purchasing residential property in South Africa, one specific mistake you should be aware of is underestimating the importance of understanding and complying with the rules and regulations of local municipalities, particularly around the issue of "rates clearances."
This is a uniquely South African concept that many foreigners are not familiar with.
In South Africa, before any property transaction can be finalized, the seller must obtain a Rates Clearance Certificate (RCC) from the local municipality. This certificate proves that all municipal charges and property rates have been paid up to date.
You should be aware that these charges can include not just property taxes, but also utility charges like water, electricity, and refuse collection.
The pitfall here is assuming that this is a straightforward process. In some cases, municipalities can be slow to issue these certificates, which can delay the entire property transfer process.
Additionally, there can be discrepancies in the municipal accounts, and resolving these can be time-consuming. In some instances, sellers have found themselves liable for outstanding debts they were not aware of.
You should also be aware that different municipalities in South Africa might have slightly different processes and requirements for obtaining the RCC.
It's not a standardized process across the country, and local nuances can be significant.
For example, in Johannesburg, the process might differ in small but important ways from the process in Cape Town or Durban.
"Community Schemes Ombud Service" or CSOS
Another unique and often overlooked aspect when buying residential property in South Africa, particularly for foreigners, is understanding the implications of the "Community Schemes Ombud Service" (CSOS).
This is specific to South Africa and can be especially relevant if you're buying property within a community scheme, like sectional titles or homeowners' associations.
In South Africa, the CSOS was established to regulate the conduct within community schemes and to provide a mechanism for resolving disputes within these schemes.
As a potential property owner in such a scheme, you need to be aware that there are additional levies associated with the CSOS.
These levies are mandatory and are paid on top of your regular homeowners' association or body corporate fees.
The pitfall here is not accounting for these extra costs in your budget. While they may not be substantial when compared to your overall property investment, they can add up, especially if you're unaware of them from the start.
Another aspect to be mindful of is the role of the CSOS in dispute resolution.
Should you find yourself in a disagreement with the body corporate or other members of the community scheme, the CSOS provides a platform for resolving these disputes outside of the court system. However, navigating this process can be challenging, especially if you're not familiar with South African legal procedures and the specific regulations governing community schemes.
The frequency of disputes within community schemes that require intervention from the CSOS is not insignificant.
It's therefore advisable for you to familiarize yourself with the workings of the CSOS and understand how it could impact your ownership experience.
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The "voetstoots" clause risk
A less commonly known but significant issue you should be aware of when buying residential property in South Africa, especially as a foreigner, relates to the "voetstoots" clause.
This term is unique to South African property law and has important implications.
"Voetstoots" is an Afrikaans term meaning "as is" or "with all faults." In property transactions, this clause implies that the property is sold in its current condition, and the seller is generally not liable for any defects, whether they are known or unknown at the time of sale. This is particularly relevant in private property sales.
The pitfall here is assuming that you have the same level of protection as in other countries, where disclosures about the condition of the property are mandatory.
In South Africa, the voetstoots clause can leave you vulnerable to unforeseen defects in the property, which can be costly to repair.
While the Consumer Protection Act does offer some protection against this clause, its applicability can be limited, especially in private, non-commercial transactions.
To protect yourself, you should conduct a thorough, independent inspection of the property before finalizing the purchase. Consider hiring a professional property inspector who can identify potential issues that you may not notice yourself. T
This step is crucial, as once the sale is finalized, it can be challenging to hold the seller accountable for any defects, unless you can prove that the seller intentionally concealed them.
The concept of "non-resident purchasing"
Another unique and often overlooked aspect in buying residential property in South Africa, particularly relevant for foreigners, involves the restrictions and regulations around "non-resident purchasing."
South Africa has specific laws and banking regulations that govern property purchases by non-residents or foreigners, which differ significantly from those applicable to South African citizens.
A key pitfall in this area is the misunderstanding or underestimating the impact of the Exchange Control Regulations of the South African Reserve Bank (SARB). These regulations govern the movement of money into and out of South Africa. As a foreign buyer, you must comply with these regulations when transferring funds to purchase property in South Africa.
Failure to do so can lead to significant legal and financial complications.
For instance, when bringing money into South Africa to purchase property, you should declare this to the SARB. This declaration is crucial because it affects your ability to repatriate funds in the future, especially if you decide to sell the property.
Non-compliance could lead to difficulties in repatriating sale proceeds, as the Reserve Bank may restrict the transfer of funds out of the country.
Additionally, you should be aware of the possibility of being subjected to additional scrutiny by financial institutions due to stringent anti-money laundering laws.
This scrutiny can extend the time needed to process transactions and may require you to provide extensive documentation to justify the source of your funds.
The frequency of complications arising from non-compliance with these regulations is significant enough to warrant careful planning and consultation with legal and financial experts specializing in South African property law and exchange control regulations.
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The risks related to "Housing Consumers Protection Measures Act"
A more specific and often overlooked aspect for foreigners buying residential property in South Africa is understanding the implications of the "Housing Consumers Protection Measures Act" and its effect on properties under construction or newly built homes.
This is particularly relevant if you are considering buying a new home or a property that is being built.
The Housing Consumers Protection Measures Act, specifically through the National Home Builders Registration Council (NHBRC), mandates that every home builder must be registered and that new homes must be enrolled with the NHBRC 15 days prior to construction.
This Act aims to protect homeowners from poor workmanship.
The specific pitfall here is assuming that all new construction is automatically compliant with these regulations.
As a buyer, you must verify that the builder is registered with the NHBRC and that the home you are purchasing is enrolled.
Failure to ensure this can leave you without recourse in the event of structural defects or poor workmanship.
Another crucial aspect of this Act is the warranty scheme it provides, covering major structural defects for up to five years and roof leaks for up to a year post-occupation. You should be aware that this warranty is only valid if the property is enrolled with the NHBRC.
The frequency of issues with non-compliant properties is significant enough to warrant careful verification.
Many foreign buyers are not aware of this requirement and may assume that all new constructions meet the necessary legal standards, which is not always the case.
"Sectional Title Schemes" issues
Another specific aspect to consider when buying residential property in South Africa, which is particularly relevant for foreigners, is understanding the nuances of "Sectional Title Schemes."
This is a unique form of property ownership in South Africa, common in residential developments like apartment buildings or townhouse complexes.
A sectional title scheme involves owning a section or unit within a complex or development, along with an undivided share of the common property, such as gardens, swimming pools, and clubhouses.
The management of these schemes is governed by the Sectional Titles Act and overseen by a body corporate, which is responsible for the management of the common property.
The specific pitfall here is underestimating the importance of understanding the rules and regulations of the body corporate, as well as the financial health of the scheme.
Each sectional title scheme has its own set of rules, and as an owner, you are legally bound by these rules. These can include regulations on pet ownership, noise levels, and alterations to your unit.
Additionally, the financial health of the body corporate is crucial. You should examine the scheme's financial statements and understand the levies charged. These levies are used for the upkeep of common areas and can vary significantly between schemes.
Unanticipated increases in levies or special levies for unexpected repairs can impact your budget.
To protect your interests, you should review the body corporate's rules and regulations before purchasing to ensure they align with your lifestyle and expectations.
Also, it is valuable to assess the financial statements of the body corporate to understand the scheme's financial health and history of levy increases.
Lastly, you should consider consulting with a property attorney or a real estate agent experienced in sectional titles to guide you through the intricacies of these schemes.
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The risks of "Beetle Certificates"
When purchasing residential property in South Africa, particularly as a foreigner, it's crucial to be aware of the specific regulations surrounding "Beetle Certificates" in coastal regions.
This is a unique requirement in the South African property market, particularly relevant in coastal areas like the Western Cape, Eastern Cape, and KwaZulu-Natal.
A Beetle Certificate, officially known as an Entomologist Certificate, certifies that the wooden structures of a property are free from certain wood-destroying beetles. In the coastal regions of South Africa, it's common for property sale agreements to require that the seller provides a Beetle Certificate.
This requirement stems from the prevalence of wood-destroying insects in these areas, which can cause significant damage to properties.
The pitfall for foreign buyers is often the assumption that this is a standard practice across all regions or that it's an optional or negligible aspect of the property transaction. However, in the specified coastal areas, it's a common and sometimes mandatory requirement.
Failing to obtain a Beetle Certificate, if required in the sale agreement, can lead to legal disputes or additional costs post-purchase.
The frequency of this requirement largely depends on the location of the property and the specific terms of the sale agreement.
In some cases, the requirement for a Beetle Certificate is waived, but in others, it's strictly enforced.
To ensure a smooth property transaction, you should check if the property is in a region where Beetle Certificates are commonly required.
Next, you need to review the sale agreement to see if a Beetle Certificate is a condition of sale. If required, ensure that a certified entomologist inspects the property and issues the certificate.
"Capital Gains Tax" or CGT implications
When buying residential property in South Africa, a specific aspect you should be aware of, particularly as a foreigner, is the "Capital Gains Tax" (CGT) implications for non-residents.
This is a tax levied on the profit made from the sale of property and can be significantly different for non-residents compared to South African residents.
The specific pitfall here is not adequately planning for or understanding the impact of CGT on your investment. As a non-resident, the rate of CGT can be higher compared to residents, and a portion of the sale proceeds may be withheld by the South African Revenue Service (SARS) as an advance payment towards your CGT liability.
This withholding rate can be up to 7.5% for individuals, 10% for companies, and 15% for trusts, of the selling price.
This aspect is particularly crucial if you are planning your investment from a perspective of return on investment.
The higher CGT can significantly affect your net returns.
Furthermore, the process of claiming back any excess amount after the actual CGT liability is determined can be lengthy and complex.
The frequency of this issue is tied directly to property sales by non-residents. It's a common aspect of the property transaction process in South Africa but one that is often overlooked or misunderstood by foreigners.
To navigate this issue effectively, you should consult with a tax advisor who has experience with South African property law and tax regulations for non-residents. They can provide you with a detailed understanding of your potential CGT liability and the withholding process.
Secondly, you should factor in the CGT and the withholding tax when calculating your potential return on investment.
Lastly, it’s very important to keep detailed records of all expenses related to the purchase and improvement of the property, as these can be deducted from the CGT calculation.
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"FICA requirements" and its issues
When buying residential property in South Africa, especially as a foreigner, it's important to be mindful of the "FICA requirements" and how they apply to property transactions.
FICA, or the Financial Intelligence Centre Act, is a South African law aimed at combating financial crimes such as money laundering. This act has specific implications for property transactions, which can be a potential pitfall for those unfamiliar with South African laws.
Under FICA, you are required to provide certain documents to verify your identity and address when entering into a property transaction. This is a part of the Know Your Customer (KYC) requirements that banks and legal firms must adhere to.
For foreigners, these requirements can be more stringent, requiring additional documentation such as proof of residence in your home country, or additional identity verification documents.
The challenge arises in the meticulous nature of these requirements.
Failure to comply fully with FICA can delay the property transaction significantly, as banks and conveyancers are legally obliged to ensure all FICA requirements are met before processing any property-related transaction.
This can be particularly cumbersome if you are not physically present in South Africa and are managing the property purchase remotely.
Moreover, the specific documents required can vary depending on your circumstances and the institutions involved in the transaction.
Each bank or conveyancing firm may have slightly different requirements or interpretations of the FICA regulations.
The concept of "Electrical Compliance Certificates"
In the context of buying residential property in South Africa, an important and specific aspect that foreign buyers often overlook is the requirement for "Electrical Compliance Certificates."
This is a uniquely South African regulation that has distinct implications for property transactions.
In South Africa, the law requires that every property transaction must include a valid Electrical Compliance Certificate (ECC).
This certificate confirms that the electrical installation in the property complies with the standards set out in the South African National Standards (SANS) for electrical installations. The requirement is aimed at ensuring the safety and integrity of the property's electrical system.
The potential pitfall here lies in assuming that this is either a mere formality or that it is the responsibility of the seller to ensure compliance.
While it is typically the seller’s responsibility to obtain and provide this certificate, as a buyer, you need to ensure that the certificate is indeed valid and up to date.
An outdated or invalid certificate can lead to legal and safety issues down the line.
Another point to note is that the electrical compliance inspection can sometimes reveal significant issues with the property’s electrical wiring or installation.
These issues need to be addressed and rectified before the certificate can be issued, which can potentially lead to delays in the property transfer process or additional costs if the seller is unwilling or unable to cover these expenses.
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