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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Foreigners hungry for SA properties

Despite the precariousness of the world’s economy, there is still a lot of foreign interest in South African properties, with investors from the United Kingdom, Germany, Australia and even the USA eyeing property here.

A recent analysis of traffic on the Lew Geffen Sotheby’s International Realty website shows that the number of international visits to the website is on the up. The French seem to be the most interested in property in South Africa, with the number of French visitors to the site up by 62%. The number of website visits from people in Australia, Canada and the UK is also up by 52%, 32% and 23% respectively. Visits by Germans have increased by 14% and American visitors have also increased by 10%.

Properties in the bracket of between R3m to R12m get the most hits from international visitors showing that it’s mainly up-market holiday homes that foreigners are after. There is also growing interest in smaller, lock-up-and-go properties in metropolitan areas suggesting that corporate travellers want a little place to call home when they are in the country on business rather than staying in a hotel.

There has always been significant interest in SA property from Europeans, particularly people from the United Kingdom. Generally, they buy properties here for holiday purposes or as retirement homes.

Interest is now more widespread, with people from all over the world looking into buying property here. Where it was once primarily luxury holiday homes in coastal regions that were being snapped up by foreigners, we are seeing an increase in the number of smaller properties in the metro areas of Johannesburg and Cape Town being sold to international investors.

While foreign interest in SA property is growing, overseas buyers are more cautious about actually taking the plunge.

While it is only the wealthy who are able to afford to buy homes overseas, they are not entirely untouched by economic factors so they aren’t as ready to jump into actually buying property as they perhaps were two years ago. The strengthening of the rand means that the foreigners’ purchasing power isn’t quite what it was either. 

As a result, foreign buyers are more price-sensitive and are looking for value for money. As with local investors, they are also weighing up their options more carefully, taking into account other factors such as security. The home has got to meet their criteria, including price, in order for them to make a commitment.

Generally speaking there is an oversupply of housing stock across most price categories so it is essentially a buyers’ market. Sellers must be realistic about the asking price on their properties if they want to ensure a sale. They must present a fair deal.