Forex Exchange and Purchasing Property in South Africa

Can I purchase a property in South Africa if I am a non-resident?A non-resident of South Africa is a person (i.e. natural person or legal entity) whose normal place of residence, domicile or registration is outside the Common Monetary Area. The Common Monetary area consists of South Africa, Lesotho, Namibia and Swaziland. Non-residents may purchase property in South Africa but in terms of Exchange Control Regulation 3 1 (f) they may not be granted any financial assistance e.g. Bond. However, the South African Reserve bank will consider requests by Non-Residents for bond facilities not exceeding 100% of his/her borrowing base.

The ‘Borrowing Base” of a Non-Resident individual is the sum introduced into South Africa to fund the purchase of a property e.g. “A non-resident wishes to purchase a property in South Africa for R600,000.00. Provided R300 000.00 is introduced into South Africa to effect the purchase he / she would be able to apply to the South African Reserve bank for permission to avail himself of a bond of R300 000.00.”   In other words 50% mortgage loans are available to Non-Residents. However, it must also be borne in mind that the banks will only grant a bond of 50% of their valuation of the property, which may in some instances not equal 50% of the purchase price.

All requests of this nature must be routed through a commercial bank and not directly with the South African reserve bank.

Proof must be provided that the funds physically came into the country (which can be done by the Transferring / Conveyancing Attorney), so that when the property is sold, the Deposit plus profit can be released. The title deed will be endorsed “non-res”.

The Non-resident does not have to open a banking account in SA, although some banks insist, as he/she can transfer funds directly from his overseas account into his Mortgage Account. If an account is to be opened, especially if an access facility is required for the capital paid off, then the non-resident is required to obtain an original letter of credibility from his bankers.

As Exchange control is a complex subject, Non Residents are advised to consult with a Forex Consultant.  The PropertySouthAfrica blog has a Forex Expert available to answer all questions and provide assistance in this regard.  Feel free to leave a comment with questions or send an e-mail to starfish@websurfer.co.za

Joint Property Ownership

In recent years, property price growth has been significant all across South Africa.  It is therefore not surprising to see more and more properties being bought jointly by two or more people. 

It has always been a common occurrence for a married couple to buy a property in both their natural names, be they married in or out of community of property.  In recent years however, there has been an increase in joint ownership where the parties are not necessarily married to each other.  This growing phenomenon can be ascribed to various factors including property price increases, common-law marriages gaining more acceptability, a greater awareness of property investment opportunities, etc. 

The route of joint ownership is often taken in cases where holiday properties are purchased.  Due to higher prices in well-known holiday destinations (especially along the coast), families often “pool” their resources to purchase such a property.  The use of the property is then shared and the financial impact on each individual person is limited.  The property “boom” in recent years made more people aware of investment opportunities.  It is no longer strange to find three or four friends buying a house, renovating it and onward selling it at a profit.

There are definite advantages to buying a property jointly with one or more individuals – the most obvious being increased buying power.  Many people are however not aware of all the legal implications of joint ownership.  In fact, the subject is so vast that an entire book can be written on the legal implications of joint property ownership.  Anyone considering buying a property jointly with someone else should at least be aware of the basic rights and duties of joint owners. 

Basic rights and duties of joint property owners

·         Each owner has the right to use the property in a reasonable manner

·         All owners are entitled to share in the profits

·         One owner can’t prevent another from using the property

·         All owners are liable for maintenance, pro-rata to their portion

·         The property can be sold or mortgaged only with the consent of all owners

·         A joint owner can sell his/her own share on the open market, unless there is an agreement in place, stating that the other owners have first right to buy

Good advice to all would-be joint property owners, is to ensure that they are aware of all legal and tax implications and also, as in any other business, that their partners have the same business ethics as they have.

Steps taken by conveyancing attorney to effect transfer of a property

By:  Dykes, Van Heerden INC 

1.           Receive instructions to attend to the transfer. 2.           Request the original title deed, original mortgage bond and the cancellation figures from the existing bond holder. The cancellation figure is the amount which the existing bondholder requires to be paid before it will cancel the bond over the property. 

3.           Request a statement from the local authority setting out the rates and taxes payable for a period of approximately three months in advance. No transfer can be effected until the Registrar of Deeds is satisfied that the rates and taxes have been paid up to the date of transfer. In case of a Sectional Title Unit, a request is made to the Body Corporate or its Managing Agent for a statement setting out levies that needs to be paid in advance to obtain a levy clearance certificate. 4.           Obtain the relevant information from the Purchaser regarding the institution that granted the bond and obtain payment of the deposit in terms of the Agreement of Sale (if applicable). 

5.           Once the Purchaser’s bond has been granted, guarantees/undertakings are requested from the Attorneys who are attending to the registration of the bond and the transfer documents are drawn. The guarantees are letters from the financial institution concerned guaranteeing that payment of certain monies will be made on date of registration of the property. An undertaking is a letter from the attorney tending to the registration of the bond, in which he undertakes to pay certain monies to the transferring attorney on date of transfer. One of the guarantees/undertakings is utilized to guarantee/undertake payment to the existing bondholder in respect of the cancellation figures referred to in (2) above. 6.           Call upon the Purchaser and the Seller to attend to the signing of the documents drafted to give effect to the transfer of the property. 

7.           Pay transfer duty and apply to the Receiver of Revenue for a transfer duty receipt/exemption. 8.           Payment is made to the local authority of the rates and taxes as per the statement obtained in terms of (3) above in order to obtain a clearance certificate as proof that such rates and taxes have been paid. In case of a Sectional Title Unit, an undertaking is given to the Body Corporate or its Managing Agent that payment will be made to them in terms of the statement obtained in (3) above on date of registration. 

9.           Upon receipt of the guarantees/undertakings from the bond attorneys, the guarantees/undertakings which are required to cancel the existing bond are sent to the attorneys attending to the cancellation of the bond. 10.        Once the transfer duty receipt/exemption and a clearance certificate have been obtained, arrangements are made with the Attorneys attending to the registration of the Purchaser’s bond and the attorneys attending to the cancellation of the existing bond to have all the documents lodged simultaneously in the Deeds Office. 

11.        After examination of the documents by the Deeds Office (which currently takes about 5 – 10 working days) the transfer and the bond will be registered and the existing bond cancelled. 12     Upon registration of the transfer in the Deeds Office, the Purchaser becomes the registered owner of the property, the Bond Attorney pays the bond proceeds to the Transferring Attorney, the existing bond is settled, the Estate Agent receives his/her commission and the Seller receives payment of the balance of the proceeds from the sale. In Cape Town, the foregoing takes place on date of registration, but in Johannesburg and Pretoria, this normally takes place on the first working day after the registration date.

Property Market Developments – Metropolitan vs Rural (Part 2)

House Price Growth

Originally uploaded by tia.buys.

Looking at housing market trends in South Africa’s metropolitan and rural areas, one has to consider house prices, the affordability of housing, building costs and building size trends.
House Prices:
Over the years, year-on-year growth in nominal house prices in the metropolitan areas seems to be closely correlated with that in the rural areas. In both areas, prices have significantly increased since 2000, peaking in 2004, before subsiding in 2005 and 2006. This was largely the result of housing becoming less affordable right across the country.
Since the start of the housing boom a few years ago, nominal house prices in the metropolitan areas have increased by a total of 204.9%, between 2000 and 2006. In the rural areas, nominal house prices have risen by a total of 207.2% in the same period. The ratio of rural to metropolitan house prices increased marginally from 80.3% in 2000 to 80.9% in 2006. This was probably the result of strong price growth in certain rural areas, especially along the coast, where supply and demand conditions have pushed prices up significantly.
Affordability of Housing:
A generally accepted method of determining how the affordability of housing has changed over time is to calculate the ratio of house prices to household income.
During the period 2000 to 2005, the nominal year-on-year growth in house prices outstripped that of gross household income by a large margin in the metropolitan as well as in the rural regions of South Africa. In the metropolitan areas, the house price-to-income ratio increased from a relatively stable 2.7 times on average during 1996 to 1999, to 2.9 times in 2000 and 5.2 times in 2005. In the rural areas, the ratio jumped sharply from 4.8 times in 1999 to as high as 10.5 times in 2005. This shows clearly that housing has become increasingly less affordable.
Building costs for new housing:
Over the last few years, building costs in all areas has been above the headline inflation rate. This can be regarded as an indication of an active building and construction sector in all regions. Factors such as a strong demand for building materials and skilled labour in view of the demand for new housing have largely contributed to this development.
The year-on-year growth in the cost of building a new house peaked in2003 in the metropolitan areas and in 2004 in the rural areas.
Size trends in new housing:
The average building area of newly-built residential properties in South Africa was on a gradual upward trend between the mid-1990’s and 2003. However, the average size of new housing reached a recent peak of 181sqm in the metropolitan regions in 2003 and 157sqm in the rural areas. A declining trend then occurred in both areas. This is probably because the affordability of housing started to impact negatively on the average size of newly-built housing across the country.
The average size of stands on which new housing was built has been on a declining trend in both metropolitan and rural areas since the early 1990’s. This can be ascribed to suitable vacant land for residential development becoming increasingly scarce. In 2006, the average land area declined to 474sqm in the metropolitan areas, which was only 40.8% of the average of 1161sqm back in 1980. In the rural areas, the average land area was 572sqm in 2006, which was 43.7% of the average of 1310sqm in 1980.
Extract of Residential Property Perspective – Second Quarter 2007 by Jacques Du Toit, Senior Economist of the ABSA group.