Foreign Buyers and Home Loans in South Africa
An increasing number of foreign buyers, also known as non-residents, have been buying property in South Africa over the last number of years. South Africa is seen as a sought-after investment opportunity by many foreigners as it offers top investment returns in comparison with cities all over the world.

Foreign buyers can obtain home loans in South Africa, subject to certain conditions. South Africa’s deeds registration system has a reputation of being one of the best in the world.

Who are classified as foreign buyers?
The following buyers are classified as non-residents when buying property in South Africa:

1. Natural persons whose normal place of residence falls outside the common monetary area of South Africa. Also companies or other legal entities registered outside the South African common monetary area.

2. A South African resident who has lived overseas for more than five years is also classified as a non-resident if he/she wants to obtain finance in South Africa to buy property. This is irrespective of whether the person has emigrated or not.

3. Temporary residents/foreign naturals can apply for local home loans and they are not subjected to the restrictions placed on other non-residents. They are assessed on the same basis as South African residents. However, should they leave the country the non-resident rulings will come into effect and they will have to adjust their home loans accordingly.

4. South African residents who work overseas can qualify for home loans in South Africa, usually for a 80% maximum loan. You need to prove that you are only living overseas temporarily and plan to return to South Africa. If you have applied for emigration or surrendered your permanent residence status you will fall in the non-resident category and those conditions will become applicable. Estate agents have reported an increase in interest by young people who falls within this category and who which to secure their future in South Africa when they return.

The conditions applicable to foreign buyers:
1. The maximum purchase price of property is unlimited.

2. The maximum home loan a foreign buyer will qualify for is 50% of the purchase price of the property. If a non-resident wants to buy a property of R1 000 000, he will qualify for a home loan of R500 000. The approval of the loan will be subject to the lending criteria of the bank where the application is made. This will include the declaration of all assets and liabilities, proof of income and a clear credit record. The balance of R500 000 must be brought into South Africa from his overseas funds.

3. All non-resident transactions, including the home-loan finance applications are subject to foreign exchange approval by the Reserve Bank of South Africa.

4. The foreign applicant does not have to open a banking account in South Africa and can make his monthly payments directly from his overseas account. Some banks may insist on the opening of a local account.

5. Foreign exchange rulings can become rather complicated and all banks have special foreign exchange departments to deal with the technicalities involved.

6. If the foreign applicant is a company or other legal entity, certain other conditions also come into play; for example the appointment of a South African resident public officer who would act on behalf of the company.

7. Capital Gains Tax will be payable on the sale of the property. It is payable in the year the sale takes place and the non-resident will have to apply for registration as a South African taxpayer for the purpose of paying the Capital Gains Tax.

8. Should the foreign buyer decide to rent out his property the rental earned will be subject to ordinary South African income tax and the non-resident must register as a South African tax payer. This also applies if the property is bought through a company.

9. Loans to foreign buyers will have a maximum term of 20 years (not 30.)

Parts of the Western Cape are particularly popular with buyers from European countries, specifically from Germany, the Netherlands and the United Kingdom. They do not only buy for investment but many exchange their winter months for sunny South Africa, they have bought into the South African lifestyle.

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 South African residents who on a temporary basis live abroad can qualify for mortgage financing and will not be considered non-residents. The loan amount varies between 80%-100% depending on their individual circumstances. Exchange Control regulations do not apply to them.

However, they must have plans to return to South Africa and an application to emigrate must not have been made. A South African resident who has lived abroad for more than 5 years will be viewed as n non-resident for  the purposes of obtaining mortgage finance in South Africa.

Non Residents

A non resident is a person whose normal place of residence is outside the common monetary area of South Africa.

Non residents can buy property in South Africa, but should they require a mortgage loan it will be subject to foreign exchange approval from the South African Reserve Bank. The mortgage loan may not exceed 50% of the value of the property. The application to the Reserve Bank can be handled by any of the commercial banks through which such a person wishes to deal.

A non-resident may only borrow 100% of his borrowing base.  His borrowing base is funds that he brought into South Africa to buy the property. Proof must be provided that the funds physically came into South Africa, which can be done by the attorneys involved in the property transfer.

Let’s assume a non-resident wants to purchase a property in South Africa for R1 million and he brings R500 000 into South Africa for the purchase. The bank would then be prepared to grant him a loan for the other half. Thus they will be prepared to borrow him a maximum of 50% of the purchase price of the property, should he or she qualify for the loan.

A contract worker is defined as a citizen outside the common monetary area who has taken up temporary residence in South Africa to work in term of a valid work permit. They may be granted the same banking facilities as for SA residents

Contract workers are regarded as SA residents for the purposes of obtaining mortgage finance in South Africa and can therefore can qualify for a 100% mortgage loan.

However, on permanent departure from South Africa the mortgage loan must be reduce to a LTV of 50% 

Temporary residents

Temporary residents (foreign nationals) can qualify for a mortgage loan of up to 100% of the purchase price of the property.

On permanent departure from South Africa, the same principle as for non-resident purchasers will apply and the mortgage loan may have to be reduced to comply with the South African Reserve Bank’s  requirements.

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