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Article by Press 22 Jul 2010

Foreign Property Investment Post World Cup

During the Soccer World Cup South Africa did an exceptional job of showcasing the diversity and beauty it has to offer. Leading on from this epic event, the promise of foreign investment into the country is much anticipated.

Says Peter Gilmour, Chairman of RE/MAX of Southern Africa: “While it was not expected that many properties would be sold to foreign investors during the World Cup period, there may well be an increased interest in property investments here now that the wider international community has been exposed to our country and some have enjoyed first hand experience of South Africa.”

While there are no restrictions on property ownership by non-residents, except a prohibition on illegal aliens owning immovable property within South Africa, Gilmour says that one has to bear in mind that there are technicalities in the deal-making process that may be second nature to us, but that foreign investors may not be aware of.

Luckily, he says, South Africa is reputed to have one of the best deeds registration systems worldwide with an exceptional degree of accuracy and guaranteed tenure. Gilmour explains that South Africa follows a system of land registration whereby every piece of land is reflected on a diagram and ownership is recorded in one of the regionally located Deeds Registries. “Property,” he says, “can be owned individually, jointly or by an entity such as a company, close corporation or trust, or a similar entity registered outside South Africa. The choice is dependent on decisions in relation to tax transfer duty issues, or relating to the protection of assets.”

However, Gilmour notes that there are procedures and requirements which must be complied with in certain circumstances. This would include the local registration of entities registered outside of South Africa who wish to purchase property here, along with the appointment of a South African resident public officer for a local company whose shares are owned by a non-resident. “In the event of a non-resident purchasing property in the country with the intention of residing here for longer periods, permanent residency will have to be applied for in accordance with the given requirements and procedures of South African law,” says Gilmour.

When it comes to international investors financing a local property, Gilmour points out that non-residents may only borrow up to a maximum of 50% of the purchase price in South Africa. The remaining 50% of the funds, he says, must be brought into the country by the purchaser and transferred from a recognised foreign bank to a bank in South Africa. “The total amount that may be borrowed is at the discretion of the commercial bank offering the loan. A non-resident must open a 'non-resident' account at a South African commercial bank, to facilitate loan repayments. This account would normally be funded from abroad or from rentals received on the property purchased, subject to the bank holding the account being provided with a copy of any rental agreement.”

But Gilmour notes, South Africa’s Exchange Control Authority allows a non-resident looking to obtain permanent residence status in South Africa to be dealt with as a South African 'resident' for exchange control purposes. This takes place upon completion of a so-called Immigrant's Declaration and Undertaking issued by South African banks.

“Once this Declaration has been completed, the applicant will be eligible to borrow 100% of the purchase price of the property. However, it will then be the responsibility of the individual to actually apply for and obtain permanent residence within a reasonable period,” Gilmour says.

In addition, he notes that non-residents who are in possession of a valid South African work permit are considered to be residents for the duration of their work permit and are therefore not subject to borrowing restrictions placed on non-residents without work permits.

“There is no doubt that there has been a significant growth in the number of private foreign owned properties over the last five years. In fact, as indicated by Lightstone's detailed report on foreign property ownership in South Africa, the total number of foreign owners is up from just over 2000 in 2004 to over 31 000 in 2009. But,” says Gilmour, “the report also indicates that only 1.6% of privately owned properties valued higher than R500 000 are currently foreign owned.”

Furthermore, the report notes that the greatest proportion of these foreign owned properties are inland freehold properties which make up 44% of all foreign owned properties. “The report does however indicate that the greatest penetration of foreign owned properties is found in coastal freehold estates where foreign ownership is only as high as 6.5% of all privately owned properties valued at more than R500 000,” Gilmour says.

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