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TRADE AND INVESTMENT OPPORTUNITIES IN SOUTH AFRICA

Land Acquisition

There are no restrictions on property ownership by non-residents, save for a prohibition on illegal aliens owning immovable property within South Africa. The procedures and requirements which must be complied with in certain circumstances include the local registration of entities registered outside of South Africa, where they purchase property in South Africa, and the appointment of a South African resident public officer for a local company whose shares are owned by a non-resident. In the event of a non-resident purchasing property in the country with the intention of residing here for longer periods, permanent residency will have to be applied for in accordance with the given requirements and procedures of South African law.

Purchasing Property in South Africa as a Foreigner

Property of any kind in South Africa is normally purchased through a broker or real estate agent, who should be registered as a member of the Estate Agency Affairs Board.

The South African Reserve Bank refers to foreigners as non-residents, whether they are natural persons or legal entities, whose normal place of residence, domicile or registration is outside the common monetary area of South Africa. Should the non-resident be paying cash for the property, the transaction can be processed without intervention from the Reserve Bank.

Non-residents purchasing a property in South Africa may borrow up to a maximum of 50% of the purchase price in South Africa; the other 50% must be brought into the country by the purchaser and transferred from a recognised foreign bank to a bank in South Africa. The total amount that may be borrowed is at the discretion of the commercial bank offering the loan.

Non-residents who are in possession of a valid South African work permit are considered to be residents for the duration of their work permit and are therefore not subject to borrowing restrictions placed on non-residents without work permits.

Legal Documentation

All contracts to acquire land must be in writing, contain certain prescribed information and be signed by both buyer and seller to be valid and legally binding. Contracts most commonly take the form of an agreement of sale or offer to purchase.

Once an agreement of sale has been signed by both parties it represents a valid and binding document from which neither party can withdraw without legal consequences, save for certain instances where:
• The agreement is subject to certain conditions that are either fulfilled/not fulfilled; and
• The purchase price is less than R250 000 and certain additional criteria in terms of the Alienation of Land Amendment Act are present, entitling the purchaser to ‘cool off’.

A non-resident must open a non-resident account at a South African commercial bank to facilitate loan repayments. This account would normally be funded from abroad or from rentals received on the property purchased, subject to the bank holding the account being provided with a copy of any rental agreement.

However, the Exchange Control Authority allows a non-resident desirous of obtaining permanent residence status in South Africa to be dealt with as a South African resident for exchange control purposes. This takes place upon completion of a so-called immigrant’s declaration and undertaking, issued by South African banks.

Once such declaration has been completed, such applicant will be eligible to borrow 100% of the purchase price of the property. However, it will then be incumbent upon such persons to actually apply for and obtain permanent residence within a reasonable period.

Exchange control is currently going through a process of deregulation in South Africa to make it progressively easier for foreigners to invest in this country and for South Africans to do business abroad. However, it remains a complex subject and non-residents investing in South Africa are strongly advised to consult a reputable lawyer or accountant for advice. The Reserve Bank retains considerable control, and while notes and guidelines have been issued, allowances will be made for exceptional circumstances.
Source: Pam Golding Properties, 2009.

Acquiring and Disposing of Land

Investors face a wide array of possibilities when choosing land for development in South Africa. Private, state, provincial, municipal and parastatal landholdings are all potentially available for commercial development – each with its own application process. The specific details of this process are determined and administered by the municipality concerned. Commercial real estate is well developed in South Africa, with private landholdings in both urban and outlying areas. The availability of industrially zoned and serviced land varies by location. Property owners, brokers, managers and developers who are members of the South African Property Owners Association are available to assist investors in locating, leasing, buying and selling private property. Any of these bodies can be contacted through the South African Property Owners Association.

For more information, please contact:

South African Property Owners Association (Sapoa)
Telephone: +27 (11) 883 0679
Fax: +27 (11) 883 0679
Website: www.sapoa.org.za

Acquiring Publicly Held Land

The process of acquiring publicly held land tends to be significantly slower than with private landholdings. Efforts are underway throughout much of South Africa to make more public land available for private purchase.

State Land

All purchases or leases of State land are subject to tender. Two scenarios exist for the acquisition of State land:
• Application by an investor or developer for the use of a particular plot of State land; and
• A response by an investor to an invitation by the government for bids to develop land.

If an investor identifies a plot of land belonging to the State, the investor must provide a detailed proposal as to how the land will be used. The proposal should include:
• A description of the land (available from the Deeds Office);
• Context of the land (within a municipality, town, etc.);
• A description of the investment and how it would facilitate development in the region;
• Timeframes for development; and
• Participation of South African citizens in ownership, management and/or marketing.

Upon receipt of the proposal by the Department of Public Works, the following occurs:
• The land is evaluated to determine whether a freehold sale or long-term lease would be more appropriate.
• The property is advertised for six weeks for competing developers to respond.
• A valuation by an independent valuer is carried out.
• The proposal (and any others received from the advertisement) is evaluated by the evaluation committee.
• The Minister of Public Works then signs the sale.
• The process will usually take from three to six months to complete.

Investors should note that land belonging to many agencies and institutions is subject to a fallback clause. Should any land that is owned by an institution, such as a university, be used for any purpose other than intended, title reverts to the state. This can cause delays for an investor who wishes to acquire land from government organisations.

 

For more information, please contact:

Department of Land Affairs
Telephone: +27 (12) 312-8911
Fax: +27 (12) 312-8066
Website: www.land.pwv.gov.za or www.dla.gov.za/

Provincial Land

In most cases, any sale of provincial land requires a tendering procedure. An investor may identify a site and submit a letter of application for use of the site.

The investor must supply the following information:
• What the land will be used for;
• Background of the company;
• Shareholding of the company; and
• Company’s financial projections.

The land is then advertised for tender, and a provincial committee evaluates the responses. Responses are usually judged on project viability, social impact, environmental impact and best use of the land. The process can take between six and eighteen months.

Municipal Land

Local authorities are major holders of public land. Land development falls under the jurisdiction of the relevant municipal council. Municipalities vary greatly in their approach to development, in terms of governing legislation, attitudes and processing systems.

In terms of legislation, some municipalities permit the direct negotiation of land sales, while others require tendering in some or all cases. Tendering typically requires a period of twelve to eighteen months, although the process can be completed in as little as six months. Direct negotiation tends to be significantly quicker, although a period may also be allowed for communities to lodge objections and appeals against such agreements.

Rezoning and Sub-Division of Land

Any requests for the rezoning or subdivision of land, regardless of land ownership, must be submitted to the local authorities. Specific application processes vary from jurisdiction to jurisdiction, although typically the applicant must submit a rezoning application, statement of motivation and processing fee. The rezone request is advertised for three weeks, after which objections are sought from parties affected by the rezoning. In some cases the investor is invited to respond to the objections. The application is then reviewed. Rezoning applications can take from as little as three weeks to as long as six months in larger cities.

Transfer of Land

Whether land is purchased from private or public sources, the process of transfer of ownership is the same. South Africa is reputed to have one of the best deeds registration systems world-wide, with an exceptional degree of accuracy and of tenure being guaranteed.

South Africa offers an unusual degree of certainty with regard to property ownership. Property can be owned individually, jointly in undivided shares or by an entity such as a company, close corporation or trust or a similar entity registered outside South Africa.
All land in South Africa, public and private, has been surveyed, beaconed and assigned plot numbers by the Surveyor General’s Office.

The role of the Deeds Office in the transfer process is two-fold:
• to guarantee the title deed, and
• to maintain a registry of deed holdings.

There are nine regional Deeds Offices throughout South Africa. The investor has no direct interaction with the Deeds Office; however, conveyancers handle the transfer of ownership. It is the accepted practice in South Africa that the seller appoints the conveyancer who attends to the transfer of the legal title in the name of the purchaser and has the responsibility to protect the interests of both the seller and the purchaser.

The conveyancer draws up a deed of transfer based on the existing owner’s title deed and attends to the registration of the final document with the Deeds Office.

The conveyancer must submit the following to the Deeds Office for registration:

• Deed of transfer;
• Title deed (from owner);
• Power of attorney;
• Rates clearance certificate, if applicable; and
• Transfer duty receipt or exemption certificate.

The purchaser pays the costs of transfer, including the conveyancer’s fee. Should a mortgage bond be registered over the property as security for the advancement of the purchase price, the bank or financial institution will instruct its conveyancer to register the mortgage bond.

The bank’s conveyancer will lodge the following documents to be registered simultaneously with the transfer documents:
• Mortgage bond; and
• Power of attorney.

The mortgagor pays the costs of registering the bond as well as the stamp duty. Should the property being transferred be encumbered by an existing mortgage bond, the financial institution in whose favour it is registered will, after the necessary financial arrangements have been made with the seller, instruct its attorney to cancel the mortgage bond. This is done simultaneously with registration of transfer of the property. The costs relating to the cancellation are payable by the seller.

Depending on the workload at the Deeds Office, the documents will be in the system after lodgement for a period ranging between two to three weeks.

Fees, Taxes and Transfer Duties

The rate of transfer duty payable depends on the nature of the purchaser. If the purchaser is a company, close corporation or trust, transfer duty at a flat rate of 10% of the purchase price is payable. An individual pays transfer duty on a sliding scale from 1 to 8% of the purchase price, depending on the value of the property being transferred.

The conveyancer will obtain a receipt for the payment of the transfer duty from the Receiver of Revenue for lodgement with the transfer documents at the Deeds Office.

Should the seller be registered for VAT and be, for example, a developer, no transfer duty will be payable by the purchaser, as the seller would have to include the VAT amount in the purchase price. In this case the conveyancer will obtain a transfer duty exemption certificate from the Receiver of Revenue for lodgement with the documents. The purchaser must provide the conveyancer with the transfer duty payable to the Receiver of Revenue prior to registration of the transfer.

Legal Protection of Property Rights in Land

Security of tenure in landholding is provided for in Section 25 of the Constitution of the Republic of South Africa, No. 108 of 1996.

Conveyancing Fees

Conveyancers’ charge fees for the work they do in the Deeds Office on behalf of their clients. The fees charged are in accordance with guidelines laid down by the Association of Law Societies.

Deeds Office Fees

The Deeds Office will charge the conveyancer a registration fee for each transaction registered. This fee is included in the conveyancer’s account to the purchaser and varies from R55 to R500, depending on the nature and value of the transaction. The average time required for the complete transfer process – including bond approval, the drafting of the deed and registration with the Deeds Office – is approximately two to three months.

For more information, please contact:

The Deeds Office Help Desk
Telephone: +27 (12) 338 7205
Fax: +27 (12) 338 7186
Website: www.deeds.gov.za

Ms. TSD Nxumalo Consul-General
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