Guide to Purchasing Property in South Africa
Kruger & Blignaut
Guide to Purchasing Property in South Africa How To Purchase Property in South Africa
What do I Pay When I Purchase Property
- Fixed property (land, dwellings, flats, etc.) is purchased through the formation of a contract with the Seller.
- South African legislation prescribes that a contract for the sale and purchase of fixed property, has to be in writing (a verbal contract is invalid).
- A contract should contain at least the following:
- A full description of the property.
- The purchase price.
- How the purchase price will be secured (It is normally secured by delivery of bank guarantees payable on transfer of the property).
- When transfer is anticipated.
- Which Attorney will affect transfer (the Seller nominates with the Purchaser to pay the attorneys fees).
- Occupational rent payable, if transfer and occupation does not coincide.
- Clause to specify that Rates and Taxes are paid pro-rata and the Purchaser pays legal costs.
- Seller pays commission of Estate Agent.
- Special consideration should be given to suspensive conditions. A suspensive condition places the contract on hold (suspends it) until a future date, i.e. that the Purchaser obtains a bond by a certain date. If a suspensive condition is not fulfilled, the contract lapses.
- Be careful of non-refundable deposit clause.
- A property may be purchased into the name of a natural person(s), Company, Close Corporation (smaller version of a company), Trust and a few entities. This must be chosen carefully, as it has an effect on capital gains tax when the property is sold, transfer duty and some obligatory accounting obligations.
- South African Law prescribes that ownership of the property vests in the person whose name appears on the Title Deed. The Title Deed is the registered government document kept by the owner as proof of ownership.
What Will I Pay When I Sell My Property
- Transfer duty (a form of government tax) is payable by the Purchaser. The rates are adjusted annually but a natural person pays less than a Company, Close Corporation or Trust. Transfer duty is payable before registration. Penalties are levied if it is not paid within 6 (six) months after signature of the contract.
- If the property is owned by a Company or Close Corporation and the shareholding is sold (instead of the property), transfer duty is also payable on the transfer of the shares (certain exceptions exist).
- If the Seller is registered for VAT (general sales tax) i.e. a developer, the Seller pays VAT on the sale price and the Purchaser is exempted from paying transfer duty.
- The Purchaser pays the legal costs of the Attorney, in order to arrange for transfer of the property into the name of the Purchaser. A prescribed tariff exists. This is paid prior to transfer.
- The parties jointly pay the Municipal Rates and Taxes, which is divided pro-rata on date of registration. The Purchaser normally pays his portion of Rates and Taxes in advance.
- If the Purchaser is taking up a bond, the registration costs of the bond payable to the Attorney, is paid by the Purchaser.
- The Seller pays the Estate Agents commission, which can be maximum of 7,5% of the purchase price (VAT excl.).
- Be careful of hidden costs such as upgrading of the house, furniture, telephone connection, water and electricity connection etc.
The Conveyancing Process
- As set out above, the Seller mandates an Estate Agent to sell his property and pays them commission when a Purchaser is secured.
- The Seller may be liable for capital gains tax if his property is sold in excess of a certain amount (if it is his primary residence) or if the property is not his primary residence, or if the Seller is a non South African resident, Company, Close Corporation or Trust. Further details can be obtained from your Attorney or Auditor.
- Ownership of property is transferred from the Seller to the Purchaser by means of registration of a new Title Deed.
- The Attorneys have to draw up the new Title Deed to reflect the Purchaser as the new owner and register the Deed at the Deeds Office (a government institution). On date of registration of the Title Deed, the Purchaser becomes owner and the money held by the Attorney, is paid to the Seller.
- The Attorney also has to prove to the Deeds Office that Government tax (transfer duty) and Municipal Rates and Taxes have been paid. The receipts are therefore also lodged with the new Deed.
- The entire conveyancing process takes approximately two months, but can, under certain circumstances, be expedited.
It is very important to insure the house and buildings on a property against damage such as fire or floods. Consideration must also be given to life insurance if the Purchaser is financing the property with a bond.
What Happens to the Property in the Event of my Death
A Will should be drawn up to deal with your assets in the Republic of South Africa, in the event of your death. Consult with an Attorney to ensure that your Will is valid in the Republic of South Africa.