Real Estate Guide

In Cape Town, the search for real estate is usually conducted via one of the many real estate agencies in South Africa. Our real estate guide describes the process of buying real estate and its specifics in detail. The internet also offers a good overview of the real estate market, as well as many weekly and monthly magazines and the weekly supplement of the daily newspapers.

Real Estate Guide South Africa - Buy or Sell Real Estate in Cape Town

Real Estate Guide South Africa

 
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Buying land or the house itself almost always follows this process: 
 
You find property that you are interested in with the help of a real estate agent. After a viewing, you eventually decide ‘this is it’. 
 
The buyer submits an offer to purchase, which is usually drafted by the broker or is entered into a standard contract template.   
 
Once the offer is signed, the real estate agent brings the offer to the seller, who then has the opportunity to accept the offer or to submit a counteroffer. A counteroffer is a modification of the existing offer. 
 
The real estate agent then puts forth the counteroffer to the buyer, who can then accept it, or also put forth a new counteroffer until it is ultimately either agreed upon or not accepted. 
 
The contract then goes to a conveyancer specified by the seller, who then controls the execution of the contract. All the necessary documents, certificates and more are given to the conveyancer. The notary prepares the payment of the transfer tax and the proportionate real estate tax. 
 
In the meantime the deposit is due, which is either transferred into the escrow account of the conveyancer or the real estate agent. Furthermore, early on the conveyancer will ask the buyer for the remaining amount of the purchase price, or at least a bank guarantee for the remaining purchase price. 
 
Approximately six to eight weeks after concluding the contract, the buyer should pay the taxes and fees to the conveyancer so that they can receive a receipt from the tax office, which is necessary for the transfer of land. 
 
If the property is encumbered with a mortgage, the conveyancer is responsible for discharging it. If the buyer will be financing, the conveyancer can prepare this registration, unless the financing bank has specified a different notary for it. 
 
In around one to two weeks before the date of transfer, the conveyancer sends all the documents to the land registry. This process takes five to ten business days until the transfer is registered, depending on the workload - often even longer. 
 
On the day of transfer, the conveyancer pays the purchase price which has been held in escrow to the seller, minus any mortgage debt.
 
Once the real estate agent has received the payment, they take their commission from the deposit and pay the difference to the seller or conveyancer. The interest from the escrow account goes to the buyer. 
 
The real estate agent can now hand over the keys to the buyer.
Real Estate Guide - The following points are important to keep in mind when purchasing property:

1. The Deed of Sale 
The purchase contract is generally set by the intermediary real estate agency, in rare cases by a lawyer or conveyancer. 
 
This is a large difference to German law, which requires a notarial purchase contract. Although real estate agents usually have standard contracts, a lack of legal knowledge often prevents a more flexible contract design, which most often affects the buyer unfavourably. Since a real estate agent in South Africa works almost exclusively for the seller, it is therefore in their best interest to sell at the best possible price. This naturally means the agent will receive a higher commission. 
 
2. The Parties (The Seller and the Purchaser): 
This sets who is selling and who is buying. There are several possibilities: private person, company (CC or Pty) or trust. The different buyer possibilities play a role when calculating the transfer duty. In addition, central bank approval is necessary if the purchase price is for a company. 
 
3. The Property 
Generally, every property in the land registry office is registered and has a property number (Reg No). A property can only be transferred free of encumbrances, which the conveyancer responsible for the transfer must ensure. A look at the title deed will give you reliable information whether a third party has any rights such as rights of way or rights of use. This document reflects the history of the property. 
 
Insist on seeing this document, or at least a copy, because surprises can always pop up. 
 
4. The Deposit 
A deposit does not need to be paid if it is not contractually agreed upon. However, real estate agents or sellers often require a deposit. The amounts may be different, but it should not exceed more than 10% of the purchase price. In addition, it should be agreed upon that the deposit will be refunded to the buyer if a resolutory condition emerges or if the contract is not concluded. Usually the deposit is due after concluding the contract. Therefore, under certain conditions a foreign buyer should ensure they receive a longer time period for the deposit. 
 
5. Time Limits: 
The deadlines to pay the deposit, purchase price, transfer tax and conveyancer can be freely arranged. 
 
If the buyer is in South Africa on holiday, then it should be taken into account that paying the deposit electronically requires a certain amount of time. It can be tedious if one needs to apply for approval from the central bank, which usually takes between 5 to 10 days to receive. However, this approval is not necessary if you buy property in your own name. 
 
6. The Purchase Price 
The final purchase price does not necessarily have to be the price that was initially set forth by the agent or owner. Very often 10% of the purchase price has been set as room for negotiation, meaning that you can often save on 10% of the price with a bit of negotiation. 
 
It is important to transfer the deposit and the purchase price to South Africa on time. When buying property on behalf of a private individual, the purchase price can be easily transferred to the conveyancer in South Africa, although all the payment documents should be kept for records and the conveyancer should issue you with an acknowledgment of receipt. These documents are necessary if one day the proceeds from the sale of the property needs to be transferred back abroad. It is important to know that a private person can take the entire sale proceeds! A corresponding note should be made on the Title Deed by the bank. 
 
While one usually has to pay a deposit of 5 to 10% of the purchase price after the parties have signed, the remaining purchase price is due shortly before the transfer. It is generally contractually regulated that the buyer will need to prove that they have the money for the purchase available. This is done typically by a bank guarantee from a local bank. As a foreign buyer, you will therefore need to ensure that the purchase price is available in an account in South Africa, or that a corresponding bank guarantee by SWIFT from abroad can be presented.
 
7. Commission 
The seller is usually responsible for the agent commission in South Africa because they asked the agent to sell their property. Ultimately, this commission is included in the purchase price, and is between 3 to 7.5% of the purchase price. Very often, the agent receives the opportunity to hold the deposit of the buyer in escrow so that they can deduct their commission from this on the day of the transfer. 
 
8. The Bank Guarantee 
The conveyancer will require proof from the buyer that they can pay the remaining purchase price. The buyer usually gives the conveyancer a bank-guaranteed cheque from their bank. If the buyer is using local financing, a letter from the financing bank will take the place of the bank guarantee. Bank guarantees from foreign banks are often associated with a lot of effort and costs. If this is required, it will need to be expressly noted in the contract, because otherwise the seller can insist on a bank guarantee from a local bank. 
 
9. Financing 
A local financing in the amount of 50% of the purchase price of real estate is easily achievable for a foreign buyer in South Africa, as long as the income of the purchaser complies with the regulations of the banks. Work permit holders or other long-term residency can also receive financing for up to 90% of the purchase price. The following documents are necessary in order to apply for financing: signed purchase contract, proof of income over the last three to six months, passport copy. The possibility of financing through a local bank institute comes up again in the clauses, which is formulated as a resolutory condition. 
 
Financing is essential for many South Africans. If it is denied, the contract will not be concluded, unless there is a pre-existing clause. 
 
10. The Conveyancer 
The conveyancer is specified by the seller. Nevertheless, the buyer has the possibility to propose their own conveyancer in the offer. Under certain circumstances, you can save costs because conveyancers can give discounts of up to 50% on their fees.
 
As soon as the contract has been signed, the conveyancer takes control of the execution of the contract for the contracting parties and is in charge of the proceedings. They will accompany the contract until the transfer of the property in the land registry office. 
 
11. Date of Transfer 
A date will be set for the transfer of land. This transfer should be made promptly, which can sometimes be difficult due to the process mentioned above. 
 
12. Occupational Interest 
Often a certain amount is agreed upon in the contract which the one who uses the house has to pay the respective owner. That means that the buyer can move into the house prior to the transfer, but then will need to pay something similar to rent for the period up to the transfer. On the other hand, it can also be agreed upon that the seller continues to live in the house after the transfer. In this case the seller pays occupational interest to the buyer for the period after the transfer. 
 
13. Voetstoots 
This clause means as much as ‘sold as is’, and is almost always found in purchase contracts, and no seller wants to remove this clause from the contract. Therefore, it is extremely important that the buyer is well informed about the house and the land.
 
14. Electrical and Beetle Certificate 
The seller or their agent will need to provide proof with regards to the power circuit in the house, as well as proof of the condition of the wood components in the building on the Western Cape. This is to determine whether there is a beetle infestation present. These certificates are issued by authorised persons and the conveyancer must produce them prior to the transfer. This safeguard clause for the buyer can be waived by the parties. 
 
15. Fixtures and Fittings 
In addition to the property, other items in the house can be purchased as well. Alongside such things that are firmly fixed to the house (fixtures and fittings) like fitted wardrobes and so on, which generally must remain in the house, you can of course also purchase other items. It might perhaps be useful to see to the sale of furniture, vehicles, etc. in a separate contract, so that you do not need to pay transfer tax on them. 
 
16. Time Period of the Offer: 
Very often, purchase offers come with a deadline. If the period expires without acceptance from the seller, then the buyer is no longer bound to the offer. It is not uncommon for the seller to wait until shortly before the end of the deadline. You should avoid making offers elsewhere during this time without knowing with certainty that the offer has been rejected or a counteroffer has been made. 
 
17. Signature 
The contract is only concluded once it has been signed by all parties. 
 
18. Costs and Fees
In addition to the transfer duty, you will need to pay fees to the conveyancer and the land registry. In addition, the buyer will need to pay the yearly property taxes pro rata. The conveyancer fees, and especially the transfer duty, are usually transferred to the conveyancer around four weeks before the transfer, who then pays the tax to the tax authorities. The receipt from the tax office is an important part of this, as without it the transfer will not be performed by the land registry.

If a private individual is purchasing the real estate, then the transfer duty is graded: As of 01.03.2015
 
Purchase Price 
R 0 – R 750,000:                     no Transfer Duty 
R 750,001 – R 1,250,000:           3% of the value which is above R 750,000
R 1,250,001 - R 1,750,000:         6% of the value which is above R 1,250,000
11% of value above R 2,250,000
 
South Africa Real Estate Guide - Specifics
If the real estate in South Africa is acquired by a company, then generally 10% of the purchase price is to be paid as transfer tax. 
 
19. VAT Vendor 
If commercial real estate is purchased, such as a guest house in Cape Town, it may be that the seller is registered for VAT (value added tax). In this case the following situations are possible: 
a) If the buyer is a private or legal person, and is not VAT registered, the seller must pay 14% VAT, which is generally included in the purchase price. 
b) If the buyer is also VAT registered, then a "zero-VAT business” can be registered in advance at the tax office. This means that VAT will not need to be added. 
 
20. Central Bank Approval 
Approval from the central bank for the import of foreign currency to pay the purchase price is only necessary if you, as the shareholder of your company, would like to give your company a loan to purchase a property. Since this is then a foreign credit, it will need to be registered with the central bank. Registration of a foreign credit then allows the purchaser to once again receive interest without approval and capital with easy approval on the basis of the loan agreement. You can find more information on the central bank of South Africa on the following page:
 
 
21. Title Deed 
Around three to four months after the acquisition of real estate, the buyer will receive the title deed from the conveyancer.  In this certificate, the legal right to the ownership of the acquired property is registered, and both the purchase price and the contracting parties are noted.  In addition, as has already been stated, all the details on third-party rights (such as rights of way, water rights) and other encumbrances are listed in the document. As a foreign buyer, make sure that the title deed has been endorsed. A non-resident stamp proves that the buyer is foreign. If the title deed has been endorsed, then the application process for the export of the possible proceeds from the sale of the South African real estate becomes much easier. You receive the stamp at the bank which received the funds to purchase the real estate in the country. 
 
It cannot be stated enough that many of the above points are often only briefly addressed by the parties involved in the process of purchasing property. Legal advice, even to just review the offer before (!) it is signed by the purchaser, should always be part of the process.
 
We hope that our South Africa Real Estate Guide has provided you with valuable information. We are happy to help you with any further consultation.

Your Cape Town Property Team