South Africa: Purchasing Property in South Africa

Last Updated: 23 August 2010
Article by Ronel Straughan

Visitors to South Africa may find a property they wish to make their new or second home, or to buy property for rental or investment purposes. Bowman Gilfillan Inc has the expertise to assist in negotiating a contract to protect the interests of a buyer or seller. We can supervise or attend the process of registration of transfer of ownership of immovable property and advise purchasers on the security of title. Our international reputation and local market knowledge establishes confidence in our expertise.

The firm was recently awarded the following ACQ Global Awards 2010:

Client Care Law Firm – Africa
Deal Maker – Africa
Most Trusted Law Firm – Africa
M&A Law Firm – Africa

The firm is a member of Lex Mundi, an association of 160 independent law firms, each a pre-eminent law firm in its jurisdiction. Lex Mundi membership provides for the exchange of professional information about local and global practice of law, all of which adds to the peace of mind of a client who may be doing business in South Africa for the first time.

Forms of ownership

There are several forms of property ownership in South Africa:

  • Freehold land (whether or not in a township, registered as an erf, lot, plot, stand or farm, and demarcated on a diagram or general plan which defines the extent of the land in question, and which ownership includes any permanent fixtures on the land);
  • Sectional Title Units (generally apartments in a multi-unit building offering full ownership of particular areas of the building, joint ownership of the common property of the scheme and membership of a body corporate consisting of all the owners in the scheme);
  • Share Block (the ownership of shares in a company which owns a property, in which the owner of particular shares is allocated the exclusive use of specific areas of building or land, and shares in the costs of the company);
  • Time-share (interests in the use of property is shared between members of a club);
  • The purchase of the interests in a property-owning legal entity, such as a company or close-corporation;
  • Fractional ownership (a general class of shared ownership and usage of property allocated under a number of different schemes and legislation);
  • Syndication (multiple owners grouping together to purchase the property and share in its ownership, either informally or professionally managed).

The initial document binding

Visitors tempted to buy property in South Africa may be faced with a standard pre-printed agreement for completion. The terms of this "offer to purchase" or "agreement of sale" signed by the offeror is in fact the final agreement once accepted by the other contracting party. Purchasers should not be under the misapprehension that it is a preliminary or draft document or merely a statement of intent. In particular, the identity of the purchaser (self, spouse, children, company, foreign legal entity, close corporation or trust) must be certain before the offer is made, as this cannot be changed after the offer has been accepted. The pre-printed standard form must reflect the true intention of the seller and purchaser and should be altered by the purchaser making the offer, if necessary, to suit the requirements of the parties. The agreement can be made subject to the fulfilment of suspensive conditions such as the securing of mortgage loan finance. In particular, it may be wise to make any offer conditional on a due diligence period during which the buyer can examine all aspects of the property within a defined period once the price and terms are settled, before deciding to proceed with the purchase.

Due Diligence

The agreement can provide for a period of due diligence during which the purchaser investigates all information available in respect of the property. The investigation can include both legal information (title conditions, zoning rights, building and use restrictions, development capacity and building plans) as well as all physical aspects of the property that can be determined by a thorough investigation by the purchaser (such as the physical condition the buildings, damp and structural problems, encroachments, boundaries and occupancies).

In the case of farming properties there may be additional considerations including water rights, the availability of irrigation schemes, access, servitudes, roads, soil condition, climate conditions, the history of land use which may affect organic farming classification and farm workers' accommodation and vested rights.

In the case of sectional title properties it is recommended that the purchaser inspect the rules of the scheme, the audited financials of the body corporate of the scheme, the minutes of the latest AGM of the body corporate and the budget for the current year.

Other terms

An agreement for the sale of land must be in writing, contain certain prescribed information and be signed by both contracting parties. This in not necessarily the case where the contract is for the purchase of shares or the member's interest in a legal entity, but of course this is recommended. There are currently no restrictions on property ownership in South Africa by non-residents, other than for illegal aliens. The right to be present in South Africa to enjoy the ownership of the property is, of course, governed by considerations of residence status/visas.

Important aspects of the agreement include:

  • Costs payable by each party including any possible occupational consideration payable;
  • Whether the price includes VAT and whether the purchaser must pay transfer duty. Transfer duty is calculated on a sliding scale up to 8% on the higher of the value or sale price for private individuals, and at a flat rate of 8% for legal entities;
  • Whether the property is being sold as a "going concern" by a registered VAT vendor;
  • The timing of the payments required under the agreement. Generally the deposit and the transfer costs must be paid soon after conclusion of the agreement and the balance of purchase price must be guaranteed well before transfer of ownership. This must be anticipated by the buyer before committing to these payments.
  • Voetstoots clause: The purchaser is deemed to have knowledge of all that can be established from a thorough examination by a diligent purchaser, described in the due diligence process set out above;
  • The dates on which occupation may be taken and on which risk passes to the purchaser;
  • Warranties with regards to the introductory agent. Generally the commission payable to the property broker is paid by the seller;
  • Fixtures and fittings: the agreement must record what is included in the agreement as forming part of the purchased property;
  • Any implied obligations of the purchaser, such as the obligation to retain a portion of the purchase price for payment to the SA Revenue Services if the seller is a non-resident.
  • A cooling-off period for sales under R250 000,00

The process of acquiring ownership

The registration of transfer of ownership of the property is attended to by a conveyancing attorney, generally appointed by the seller, at the cost of the purchaser. The costs include the transfer duty payable to the State, deeds registration fees, rates clearance costs as well as the fee of the conveyancer (as determined in accordance with recommended guidelines of the Law Societies). The costs of the registration of a mortgage bond, if required by the purchaser, would be in addition to the costs of the transfer and this will be payable to the attorneys preparing the loan and bond documents for the lending institution.

The documents are prepared by the conveyancer for signature by both parties, and if these are to be signed abroad, certain strict rules must be followed for the proper authentication of signatures.

Foreign funds are easily introduced to South Africa by payment into a local banking account. Purchasers are urged to ensure that their record-keeping of funds brought into South Africa is well-maintained with the correct proof of receipt from the local receiving bank to facilitate the repatriation of funds on the resale of the property in due course in accordance with local Exchange Control Regulations. Money may be borrowed locally, although restrictions apply. Importantly, on the sale of the property, non-residents may repatriate the full nett proceeds of the sale provided certain requirements are met. It will be necessary to secure exchange control approval for the transfer by providing proof of residence status and the introduction of the full purchase price and costs from abroad for the initial acquisition. Accurate record keeping is essential and the endorsement of the title deed to show the non-resident status of the owner will facilitate this process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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