Louwrens Koen

Louwrens Koen

Louwrens Koen was admitted as an Attorney in 1995 after completing his Blc LLb degrees from the University of Pretoria. He is also an admitted Conveyancer and is the author of hundreds of legal articles on the worldwide web.

Monday, 15 February 2016 14:13

Conveyancing Terms Explained

Act A form of legislation passed by the courts for the government.

Addendum A supplementary and separate agreement to an original sale contract, and should it contradict the original contract, it is presumed to overrule it.

Administration Fee The monthly cost that the bank charges to handle a mortgage loan.

Affordability Analysis An analysis of a buyers income, liabilities and available funds, in order to determine their ability to afford the purchase of a property.

Agreement of Sale Also referred to as the Offer to Purchase. It is a legally binding document signed by the buyer and seller, whereby the buyer agrees to buy a property from the seller, who agrees to sell the property to the buyer for a proposed purchase price and conditions on which the sale will take place.

Alienate The Alienation of Land Act 68 of 1981 governs the alienation (selling, exchanging or donating) of immovable property.

Amortization Loan payment by equal periodic payments calculated to pay off the mortgage at the end of a fixed period.

Amortization Term The length of time required to repay the mortgage loan, expressed as a number of months.

Annual Percentage Rate (APR) A measurement of the full cost of a loan expressed as a yearly percentage rate.

Antenuptial Contract An agreement entered into by parties prior to getting married, they will then be married out of community of property.

Appraisal An estimate of the value of property, made by a qualified professional called an "appraiser".

Arbitration Procedure whereby parties to a dispute appoint an arbitrator, whose decision is final and binding, to settle the dispute.

Assets What you own. Movable and immovable property plus investments such as shares; and all other belongings.

Assessment The bank’s assessed valuation of the property.

Association Agreement An agreement concluded between the members of a close corporation, which states the contractual capacities of the members.

Attorney Allocation The specific attorneys on behalf of a specific bank who are allocated to do registrations on behalf of specific bank.

Auction Method of selling a property to a person who makes the highest bid.

 

B

 

Bank A financial institution.

Body Corporate The controlling body of a sectional title scheme, responsible for the costs of upkeep and maintenance of the property.

Bond See mortgage.

Bond Registration Fees Payable by the borrower to the bond attorneys who are attending to the registration of the bond at the Deeds Office.

Bond Term The time period, over which you have to repay your homeloan.

Borrower The person who applies for and receives a mortgage loan with the intention of repaying the full loan amount.

Breach Clause A condition in a contract, which obliges the parties to give the defaulting party written notice to remedy their breach of contract within a specific period (usually seven days) before the contract can be cancelled.

Bridging Finance A second loan that is collateralized by the borrower's present home allowing the proceeds to be used towards a new house before the present home is sold.

Building Loan A loan used to finance building.

 

C

 

Cancellation Attorney This attorney attends to the cancellation of the seller’s bond and is appointed by the bank, which holds the current mortgage bond.

Cancellation Figures Outstanding amount on the mortgage, interest and any other costs required to settle the mortgage bond.

Capital Gains Tax All taxpayers are taxed by the government on the profit they make from the sale or disposal of an asset , such as property.

Capital Redemption Repaying the capital amount in addition to the monthly bond repayments.

Cash Flow The amount of cash derived over a certain period of time.

Cession A document signed by the borrower, ceding their life policy to the bank, as surety for a mortgage.

Clearance Certificate Issued by the relevant authority stating that the rates or levies for the property have been paid up to a future date.

Close Corporation (CC) A business entity registered in terms of the Close Corporations Act 69 of 1984. A maximum of ten natural people can be members of a CC. It may conclude agreements of sale or leases in it’s own name.

Cluster A freehold property in a development of similar houses, usually with good security and limited access.

Code of Conduct A set of ethical rules drawn up by the Estate Agency Affairs Board to regulate estate agents’ ethical conduct.

Collateral The amount of security provided to secure a mortgage bond.

Commercial Property Property used for business or office use.

Common Property It is all the land in a sectional title complex, as well as those parts of the buildings which are not included in a particular section or unit. Common property can include stairwells, lifts or elevators, carports, swimming pools, gardens, etc.

Commission See Professional Fee.

Common Law The law that automatically applies if the parties have not reached an agreement on a specific legal issue in the Offer to Purchase. The South African common law is the Roman Dutch Law.

Company A trading entity that is commonly used for commercial activity and may enter into agreements of sale or lease in its own name.

Condition A clause that renders the operation and consequences of the contract as a whole dependent on an uncertain future event. A suspensive condition suspends the operation of the contract for a period of time, subject to the occurrence of a future event, and only if and when the condition has been fulfilled will an enforceable contract exist. In the case where a resolutive condition is stipulated, the contract is immediately binding and will remain binding unless the condition is not fulfilled.

Conditions of Title Restrictive conditions limiting an owner's rights over their property, which are recorded on the property’s title deed. They cover matters such as building limitations, mineral right reservations and servitudes.

Consolidation of Debt Applies when a customer is paying off two products bought on credit and he chooses to combine both products and pay them off as one debt, possibly taking advantage of a lower rate.

Contract A legally enforceable agreement, for example a lease or sale.

Conveyancer An attorney who is appointed by the seller and is qualified to attend to the registration and transfer of immovable property from a seller to a purchaser and the registration of any bonds.

Conveyancing Costs Costs payable to the conveyancer.

Cooling-off Right A statutory right, recorded in Section 29A of the Alienation of Land Act, giving the buyer of a residential property costing R250,000 or less, the right to withdraw from the sale within five working days of signing the offer to purchase. It does not apply if the buyer is a company, close corporation or trust.

Costs Clause Makes provision in a mortgage loan document, securing an additional amount lent, to cover potential costs, such as transfer and bond costs.

Credit Record The credit history and current status of a borrower's credit standing.

Creditor Someone to whom you owe money.

 

D

 

Debit Order An instruction to the bank to debit your account monthly with your monthly expenses, i.e. your homeloan installment.

Debtor Someone who owes you money.

Deed of Sale Also referred to as the Agreement of Sale or Offer to Purchase.

Deeds Office A government department responsible for the registration of transfer of immovable property.

Deed Office Registration Fees Charged by the Deeds Office for registering the mortgage bond and title deed.

Default Failure to meet legal obligations in a contract.

Defect A patent defect is a clearly visible defect. A latent defect is a fault or flaw that is not immediately detectable, or is hidden from view on inspection of the property.

Deposit Money you have readily available that you use as part of the payment on your new property. When renting property, a deposit is an amount that you pay upfront and is used as security in the event that you cause any damage to the property while renting it.

Domicilia Citandi et Executandi Also referred to as Domicilium. It is the physical address a person gives for any legal documents and notices that might have to be served, it is the place where a person is deemed to be a permanent resident and may not be be a PO Box or Private Bag Address. . If you have been sent a document or notice to this address, you will be deemed to have received it, even if you did not in fact receive it.

Domicilium See Domicilia Citandi et Executandi.

Down Payment Money paid to make up the difference between the purchase price and the mortgage amount.

Duet House One of two separate free-standing or attached units that have been built on one stand.

Duplex A sectional title unit on two levels with stairs.

Dwelling Any house, flat, apartment, room, hostel room, hut, shack, outbuilding, garage or demarcated parking space.

 

E

 

Electrical Compliance Certificate A certificate, which is issued by a qualified electrician stating that the electricity installation for a property, from its supply point, is safe according to the Occupational Health and Safety Act. The cost of this and any electrical repairs that need to be made are for the seller’s account. It is legally required in order for the property to be transferred into the purchaser’s name.

Endorcement A note made on the title deed of a property by the Registrar of Deeds.

Entomologist’s Certificate Legally required in some coastal provinces before transfer of a property can take place, confirming that its structure is free of wood borer or termite infestation.

Equity The value of a property an owner has over and above the mortgage against the property.

Escape Clause A condition in a contract, when a buyer is given time to sell his property first, giving the seller the right to cancel the agreement if he gets a higher offer from another buyer.

Estate When a person dies, all their assets and liabilities will be placed in their deceased estate, which is wound up by an executor.

Evaluation A realtor gives an informed opinion on the market value of a property, commonly known as a comparative market analysis (CMA).

Exclusive Use Area The owner of a sectional title unit can never become the owner of any portion of common property, but they can acquire the right of the exclusive use of a certain portion, such as gardens and parking bays.

Expropriation Procedure where a property is taken over, usually by local authorities, for specific purposes in the public interest.

 

F

 

Finance Money.

Finance Charges The interest charged on a loan.

First Mortgage The primary lien against a property.

Fixed Installment The fixed monthly payment (including interest) due on a mortgage loan. It remains constant for a certain period, and goes hand-in-hand with Fixed Interest Rates.

Fixed Interest Rate The mortgage interest rate will remain the same for a specified term of the mortgage for the original borrower.

Fixtures and Fittings Attachments to a home, which are deemed to permanently belong to it. If it is permanently attached, nailed or screwed into the floor, wall or ceiling, it is a fixture.

Foreclosure A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Freehold A free-standing house on a plot of ground with its own Erf number.

Full Title Describes the transfer of full ownership rights to the buyer.

 

G

 

Guarantee A formal letter issued by a financial institution to the transferring attorney, undertaking to pay the purchase price (or outstanding amount) on registration of transfer of the property into the name of the buyer.

 

H

 

Home Owners Assurance Insurance taken out to cover your property from damage caused by fire, rain, a broken geyser, etc.

Homeloan An agreement between the customer and a bank whereby the bank lends the customer money in return for a security (mortgage bond) being registered over the property in the bank’s favour.

House A dwelling, usually in the form of a freehold property, with a structure built on it for the use of living in it.

Householder’s Insurance Insurance against the loss of or damage to the contents or belongings of a residence.

House Rules These are the rules governing the control and management of the property in a sectional title development..

Huur Gaat Voor Koop ‘Lease goes before sale’ – where leased properties are sold before the lease expires, the tenant may remain in occupation of the premises until the lease expires.

 

I

 

Immovable Property Land and everything that is permanently attached to it.

Initiation Fee A once-off fee charged by the bank to offset the cost of opening the mortgage account.

Insolvent A person who is unable to meet his debts or discharge liabilities.

Installment The regular monthly amount that a borrower agrees to pay on an outstanding debt to a lender.

Interest The fee charged for borrowing money.

Interest Bearing Account When attorneys and/or realtors hold money for clients, it is deposited into separate Interest Bearing Accounts, until these monies and interest accrued during this time have to be paid out to whom they are owed.

Interest Rate The percentage of a loan that a financial institution charges, which is payable monthly.

Investor A money source for a lender.

 

J

 

Joint Income The total gross income of the mortgage applicants.

Joint venture An investment entity formed by one or more entities in order to acquire or develop and manage assets.

Judgement A legal recording of a person’s inability to honour a debt.

 

K

L

 

Landlord The person who lets out a property to someone else.

Latent Defect See defects.

Lease Agreement A contract whereby the landlord allows the tenant temporary use of a dwelling, in return for payment, known as rent.

Legal Entity A company, close corporation or trust.

Lessee A person who occupies a property (also known as a tenant), but does not own it and pays rent in return.

Lessor The person who rents out a property to someone else.

Levy Levy is the owner of a sectional title unit’s proportionate share of the costs incurred by the complex for the month.

Levy Clearance Certificate Issued by the body corporate of a sectional title scheme stating that the levy has been paid to a future date in respect of the property.

Liabilities A person's long-term and short-term financial obligations.

Lien Where a person has improved someone else’s property or has incurred certain expenses in respect thereof, he may retain possession of such property until the debt due to him has been discharged, it is the right to retain possession.

Limited Real Right A registered right over someone else’s property, such as servitudes and mortgage bonds.

Loan A sum of borrowed money (principal) that is generally repaid with interest.

Lodgement The act of handing in the necessary documents at the Deeds Office for examination and registration of transfer.

 

M

 

Mandate An instruction, authority or agreement given to a realtor by a seller, to market their property.

Market Value The price that a willing and financially able buyer would pay, to a willing seller, for a property in a particular area at a given time.

Married In Community of Property Parties have a joint estate and any immovable property will be registered in both spouses’ names.

Maturity The date on which the principal balance of a loan becomes due and payable.

Memorandum This document forms part of the constitution of a company and contains valuable information about the company.

Minor A person who is unmarried and under the age of 21.

Mortgage An agreement between the customer and a bank in the form of a homeloan, whereby the property is used as the security for the loan. It is a legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Originator An individual or company that assist buyers in applying for a mortgage, homeloan or building loan, with the different banks.

Mortgagee The lender usually a bank, that advances or lends money on the security of a property purchased.

Mortgagor The borrower, who borrows from a lender by mortgaging his property to the lender as security.

 

N

 

Net Income The borrower's gross income minus tax and other deductions.

Nominee The person nominated or appointed by another person for a specific purpose.

Null and Void A legal expression, meaning a final cancellation or lapse of an agreement without any legal effect.

 

O

 

Occupation The date when the buyer is entitled to physically occupy the new property.

Occupational Rent An amount paid by the person occupying the property to the party in whose name the property is registered, if the registration of transfer does not take place at the same time as the occupation date.

Offer to Purchase See Agreement of Sale.

Option An offer made to a person coupled with an undertaking by the person making the offer not to revoke his offer for a specific period.

 

P

 

Participation Quota Used to calculate the individual owner’s monthly levy in a sectional title, it is determined by dividing the size of each section into the total floor area of all the sections.

Partnership A contact between a minimum of two and a maximum of twenty persons, to carry on business in common. There are no formalities required to start a partnership and it is not a separate legal entity. Partners are personally liable for partnership debts.

Patent Defect See defects.

Pre-approval Certificate Issued to you by a financial institution, it states the amount of the homeloan a person qualifies for.

Possession It passes to the buyer on registration of transfer, with all obligations and rights to the property passed to the new owner.

Power of Attorney A legal document authorizing one person to act on behalf of another.

Professional Fee Remuneration paid to a realtor by their client.

Progress Payments Payments made to the building contractor, by the bank, from the customer’s building loan account, as building work progresses. The assessor does an inspection and releases the retention accordingly.

 

Q

 

Qualifying Ratios Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

 

R

 

Rates and Taxes Taxes are levied on all property owners by the municipality. Rates are included in the levy if you buy Sectional Title. They are payable on a monthly basis and are calculated as a percentage of the value of the property.

Rates Clearance Certificate Issued by the local authority stating that the rates and taxes have been paid to a future date in respect of the property.

Real Estate Agent See realtor.

Real Right A right over or in respect of immovable property and registered against the title deed of the property.

Realtor A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Registering Attorney This attorney attends to the registration of the new bond into the name of the buyer.

Registration of Transfer The process whereby ownership of property transfers from the seller to the buyer via a Deed of Transfer.

Repo Rate A credit management tool used by the South African Reserve Bank to regulate customer spending in the country.

Repossession of Property See foreclosure.

Resolutive Condition The contract is immediately binding and will remain binding unless the condition is not fulfilled.

Risk Profile A person’s credit worthiness.

 

S

 

Second Bond or Mortgage An additional loan on a home.

Sectional Title A development made up of sections, whereby all section owners are members of a Body Corporate. Each section owner is responsible for their own section.

Sectional Title Register A register of sections in a sectional title scheme registered in the deeds office.

Security Collateral for the bank that a client pledges in case they default on their mortgage payment.

Semi-detached House Two separate homes, joined with one common dividing wall.

Sequestrated When a creditor seizes assets to recover unpaid debt.

Servitude A registered right (as per the title deed) that a person has over the immovable property of another.

Shareblock A buyer acquires a share in a company that owns the shareblock scheme, which entitles the buyer to use and occupy a specific unit. A shareblock buyer never receives the title to the unit.

Simplex A sectional title unit on one level with no stairs.

Smallholding A property of maximum 20 hectares situated within close to a built-up area.

Stamp Duty A tax imposed by the government.

Statutory Law Written law of the country.

Subdivision Dividing of property into two or more portions, whereby a specific legal and technical procedure must be followed.

Subject-to Sale A term used to describe that the sale will only become unconditional if and when the stipulated conditions are met.

Subsidy A housing allowance.

Surety A person who stands as guarantor for a loan for someone else.

Survey A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

Surveyor General’s Diagram A diagram that shows sub-divisions, servitudes and expropriations.

Suspensive Conditions Conditions written into the Offer to Purchase by either party that must be fulfilled for the agreement to become unconditional and legally binding.

 

T

 

Tax Certificate A breakdown of how much interest and insurance was paid, as well as total repayments to the home loan account over a certain period.

Tenant A person who occupies a property, but does not own it and pays rent in return.

Timeshare A property development where occupancy time is sold.

Title Deed A document that gives evidence of an individual's ownership of property. It includes the following information about the property: names of the current and previous owners; a full description including it’s square meterage; the purchase price paid by the existing owner; all conditions restricting the use; and all limited real rights registered.

Townhouse A general term for either a simplex or a duplex.

Transfer Costs Costs payable for the registration of a property and include transfer duty, conveyancing fees, and registration fees.

Transfer Duty A tax levied by the government on the transfer of land. If the purchase price includes VAT no transfer duty is payable.

Transferring Attorney Appointed by the seller to attend to the transfer of the property into the name of the buyer.

Trust A contract between the founder and the trustee in terms of which the trustee is to administer the trust fund for the benefit of the beneficiaries.

Trust Account The separate interest bearing accounts used when attorneys and/or realty companies hold money for people, until these monies and interest have to be paid out to whom they are owed.

Trustee A person appointed to manage the affairs and assets of a trust. In terms of sectional title, the trustees attend to the day-to-day running of the scheme, which includes the collection of levies and the employment and management of staff.

 

U

 

Underwriting The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

 

V

 

Valuation Fees The amount that a financial institution charges to assess the property prior to granting the finance that has applied for.

Value Added Tax (VAT) Tax on goods that is levied on the value added that results from each exchange. If the seller is a "VAT Vendor", VAT may be payable and not transfer duty, or, if the Purchaser is a Vendor, transfer duty may be payable

Variable Rate Fluctuates according to the Interest Rate.

Voetstoots “To sell it as it stands” without any guarantees given by the seller as to the condition of the property, the seller therefore cannot be held responsible for latent or patent defects. The property is sold "as is".

 

W

 

Waiver of Lien A legal document where a contractor waives his common law right to hold control over a property if he is not paid in full.

 

X

Y

Z

 

Zoning The purpose for which your property may be used, for example, residential or business as deemed by your local authority.

Monday, 15 February 2016 13:58

WHAT IS CONVEYANCING?

The term "CONVEYANCING" describes the legal process whereby a person, company,  close corporation or trust becomes the registered and lawful owner of fixed property and ensures that such ownership cannot be challenged. It also encompasses the process of the registration of mortgage bonds. (See our brochure on "Mortgage Bonds").

 


WHAT IS A CONVEYANCER?

 

A Conveyancer is an attorney who also passed the national conveyancing examination and by law is the only person who can register fixed property transfers. This is necessary to ensure the protection of the various interests the parties have in the transaction and to maintain the high standard of land registration.


WHO APPOINTS A CONVEYANCER?

The seller usually appoints a Conveyancer to attend to the transfer of fixed property, although this, like other aspects of a sale agreement, can be varied by negotiation between the parties.


WHAT IS THE FIRST STEP IN THE SALE OF FIXED PROPERTY?

The first requirement is a valid agreement of sale. This is a written agreement which is signed by both the purchaser and seller (and by the sellers’ spouse in cases where the parties are married in community of property, or account to the laws of a foreign country). A written "Offer to Purchase" signed by a  purchaser and accepted by a seller also constitutes a binding agreement. An oral contract for the sale of fixed property is invalid.


WHAT ARE THE TERMS OF SALE TO BE CONSIDERED BY THE SELLER (AND PURCHASER)?


The name, address, identity numbers and marital status of both buyer and seller, (e.g. married in or out of community of property, or by way of foreign marriage); if a company is buying, the capacity of its signatory; A clear description of the property; The selling price and manner of payment. If a deposit is payable, that it be held in trust by the named Conveyancer or estate agent;

That the buyer is to pay all transfer costs and all taxes and other municipal charges on the property from the date of possession;

The date on which the buyer is to take possession and occupation; the date on which transfer is to take place;

That the property is sold "voetstoots" or "as is" (in other words without any guarantee by the seller regarding visible or hidden faults);

The name of the Conveyancer who will attend to the transfer;

That commission is due to a named estate agent, and the amount thereof; that the specific agent introduced the buyer to the property; or was the cause of sale;

That if occupation is taken before the date of transfer, the buyer will pay occupational interest or rental from that date. The amount and manner of payment must be stated;

If a borer-free certificate has to be obtained, who must pay for the inspection and any work required;

Who will pay for an "electrical certificate" and any work required;

That no amendment to the agreement of sale will be valid unless it is in writing and signed by both parties;

Where the sale is subject to the purchaser obtaining a loan, the amount of such loan, the institution to whom he/she may apply and the date by which the loan must be approved;

Where the sale is subject to the sale of the purchaser's property, a description of the property, the amount for which it is to be sold and the date by which it must be sold.


Any special condition which has been inserted either at the instance of the buyer or the seller must be carefully checked. The seller may wish to ensure that certain  items are not regarded as immovable, forming part of the property sold. He must check to see that these have been properly listed. It is usually wise to obtain legal advice on special conditions.


WHAT HAPPENS NEXT?

The Deed of Sale is handed to the appointed Conveyancer, who will draft the necessary documents. Both the seller and the purchaser will be required to call at the offices of the Conveyancer to sign the necessary documents. The documents to be signed include the following:


A Power of Attorney to Pass Transfer

This document must be signed by the seller as it empowers the Conveyancer to transfer the property on his/her behalf.


Declaration in respect of Marital Status, Identity Number and Insolvency. Both purchaser and seller must depose to an affidavit wherein they state their marital status, identity number and confirm their solvency.

Transfer Duty and Value Added Tax (VAT) Declaration Transfer duty is a form of tax payable, normally by the purchaser, to the Government and is calculated on the value of the property. Both the purchaser and seller have to sign transfer duty declarations to be furnished to the Receiver of Revenue in which they affirm the purchase price to be paid. VAT is not usually payable on transactions between private purchasers and sellers but will be if the seller is a registered vendor under the VAT Act. Where the seller is registered as a vendor, he will sign a VAT declaration. If VAT is payable on the purchase price no transfer duty will be payable.


Bond Documents

If the purchaser obtains a loan from a financial institution, the lender will require the purchaser to register a bond over the fixed property to secure the loan. To enable the Conveyancer appointed by the financial institution to prepare the necessary documentation, the purchaser must submit his/her identity document, marriage certificate and, if applicable, Antenuptial Contract to the Conveyancer concerned.


WHAT ARE THE COSTS INVOLVED?

The costs relating to the transfer of the fixed property fall into three categories.


Transfer Duty or VAT

Where transfer duty is payable, a formula is applicable based on the value of the property. Transfer duty normally constitutes the majority of the costs; sometimes 90% or more of the costs of transfer, and is payable by the purchaser.


Rates and Levies

Whilst not a cost of transfer, rates and levies must be paid in full on date of transfer. A pro rata (normally to date of possession) portion of the charges payable on the fixed property to the relevant local authority or the levies payable to the Body Corporate in the case of a sectional title unit.


Fees

The Conveyancer's fees are prescribed by a tariff and are calculated on a sliding scale based on the purchase price. The purchaser is normally liable for payment thereof together with VAT thereon.


Bond Registration Costs

Where a bond is to be registered, stamp duty is payable to the Receiver of Revenue, the amount whereof depends on the amount of the bond. The Conveyancer's fee is calculated on a sliding scale based on the amount of the bond and is payable by the purchaser to the Conveyancer who registers the bond together with VAT thereon.


Bond Cancellation Costs

If the seller has a bond registered over his/her property, this must be cancelled on transfer and the seller is responsible for payment of the Conveyancer's fee for cancellation together with VAT thereon. Once the documents have been signed by the purchaser and the seller, and the transfer costs, transfer duty and rates and levies have been paid, the Conveyancer may proceed with the registration of transfer of the property in the Deeds Office Click here to download a comprehensive Offer to Purchase/Deed of Sale/Koopkontrak van grond Click here for a writter conveyancing quotation

 

For further information please contact us on:

Telephone: 012 343 0267

Fax: 012 343 0269

Cell: 0828805646

Postal: Po Box 14382, Hatfield 0028

E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

Website http://www.louwrenskoen.co.za

Park street Law Chambers

Park Street 755

Arcadia

Pretoria

Gauteng

0001

South-Africa


 


 

There are various issues involved in purchasing immovable property in a foreign  country which extend beyond the mere signing of contracts and documents and paying of money of which the aver-age non-resident interested in purchasing property is unaware, or would like to know, but is perhaps unsure who to ask.

 

To this end, we have put together a selection of questions frequently asked by  non-residents that we trust will assist in clarifying these issues. In order to obtain a comprehensive idea of the processes involved in buying and selling property in South Africa, this brochure should be read in conjunction with our brochures Buying Property in South Africa and The Complete Guide to Buying and Selling Property in South Africa.

 

Are there any restrictions on non-residents buying property in South Africa?

 

The answer to this is a resounding NO, save for a prohibition on illegal aliens owning immovable prop¬erty in South Africa. Non-residents will of course be  subject to the same laws and regulations as South Africans and it is compliance with these that ensure the efficiency of the S.A. land registration system and security of tenure.

 

Should the non-resident not wish to purchase the property in his or her own name but rather in the name of an entity, such an entity must be locally registered and meet the requirements inherent in registration of the chosen entity, such as those con-tained in the Companies Act.

For example, the non-resident may decide to own the property through share ownership in a company, membership in a close corporation (unique to South Africa) or as a beneficiary in a trust. In the event of a non-resident acquiring property in the  name of an entity, funds brought into the country will represent a loan to the  local entity and will require Exchange Control approval.

 

For the most part however, property is registered in the name of the purchaser as an individual. There may be specific reasons for taking transfer in the name of  an entity and for a brief overview of these, kindly consult our Purchasers.

 

Guide to Alternate Entities for Acquiring Ownership Of Immovable Property.

 

Note that purchasers, will have to finalise their choice of vehicle for purchasing the property prior to signing any Offer to Purchase or Agreement of Sale, as no  changes can be made at a later date without the possibility of penalties being  imposed and resultant delays in the transaction.


Finally, a non-resident can purchase South African property over the internet without entering the coun-try. However, should the prospective purchaser intend residing in the property for any length of time, he or she will need to comply with the requirements of the Immigration Act and either have a valid permit to temporarily remain in the  country or be in posses-sion of a permanent residency permit.

 

How can foreign funds be brought into SA for a property acquisition?

 

Foreign funds can be paid into any nominated bank account in South Africa. This account will usually be the trust account of the estate agent or transferring attorneys into which the deposit for the property and the balance of the purchase price is paid. These funds will be invested for the non-resident’s benefit and  the non-resident can rest assured that such a transfer is secure and guaranteed, as the operation of these trust accounts is regulated by the profes-sional boards overseeing the operations of both attorneys and estate agents.

 

When a non-resident transfers funds from a foreign source into a South African bank account, a record known as a ordeal receipt, is kept of the foreign funds received by the South African bank. This is an important document which must be retained for purposes of repatriation of the funds.

 

Can a non-resident open a bank account at a South African banking institution?

 

In order for a non-resident to service repayments on a mortgage bond, he or she will need to open a non-resident banking account which can either be done from abroad or from within the country. Again, certain documentation relating to the applicant identity will be required, ie. application form detailing name, passport number and address, certified copies of the relevant pages of the passport, and proof of source of income, such as a salary slip or pension statement. All copies will have to be  originally certified. Once the bank account has been opened, foreign funds will have to be deposited immediately.

In certain circumstances, local currency can be deposited into the account, for example, rental income acquired from property belonging to the non-resident. This is dependent on the bank being in possession of a certified copy of the rental agreement.  Obviously the rand value received on the sale of immovable property in South Africa can also be receipted into the non-resident account provided the necessary  documentation is lodged prior to the deposit being made.

 

Who chooses which attorneys will attend to the transfer and whose interests  are the attorneys protecting?

 

It is customary in South Africa for the seller of immovable property to nominate the attorneys who will attend to the transfer. Such attorneys then act for the  seller and on his or her instructions. Consequently, in the event of a dispute between the seller and purchaser, the purchaser would have to seek independent legal advice.

Note that whilst the seller selects the attorneys, the purchaser pays the transfer costs.


Can transfer and bond documents be signed overseas and if so, what is the procedure?

 

Yes. However, there are certain formalities that must be complied with. Documents can either be signed before a Notary Public or at the South African Embassy in that country, but this can be costly and time consuming. If a seller or purchaser is in South Africa  at the time of the transaction but returning overseas shortly thereafter, it is advisable if at all possible to sign a special or general power of attor-ney in favour of a local friend or family member who will then be able to act on their behalf.


Other than the purchase price, are there any other costs for which the purchaser will be liable?


Yes. The purchaser is usually liable for the following costs:


 

1. Transfer duty, which is a tax levied on property and based on the purchase price,  (this is not payable if the seller is VAT registered);

2. Transfer fees;

3. Deeds Office levies, pro-rata rates and taxes/ sectional title levies;

4. The cost of obtaining a rates/levy clearance certificate.

 

Most of these costs are determined according to the purchase price of the property.


 

Further costs, including the attorney's fees and bank charges such as the initiation and valuation fee, will be incurred if the purchaser registers a mortgage bond.

 

Once the purchaser takes transfer of the property or assumes the risk therein, he or she will be liable for all costs and associated risks. If the property is not bonded, it is in the purchaser's best interests to obtain insurance. This is compulsory if the property is bonded and is normally arranged by the bank concerned.


On sale of the property, can the money be taken out the country?


Understandably, this is without doubt the number one concern of non-residents considering investing in South Africa. The answer to this question is simply, yes. Money from a  foreign source together with any profit, proportionate to that non-residents share holding in the property, may be repatriated in due course in terms of S.A. Exchange Control Regulations. If the non-resident owns property together with a S.A. resident, only his portion may be repatriated.

 

Furthermore, if a foreigner takes up permanent residency in South Africa and signs a Declaration and Undertaking at a South African bank (namely declaring whether they are in possession of foreign funds and undertaking not to place same at the disposal of  anyone resident in the Republic), they will be considered a resident for Exchange Control purposes and accordingly will only able to repatriate funds within five years of their  immigration. Thereafter they will be considered to be a South African citizen and subject to the same regulations and limitations.


Finally, the repatriation of funds will be subject to capital gains tax and this will be discussed more fully in due course.


Is a non-resident, liable for payment of any South African income tax?


While South Africans are taxed on their worldwide income, non-residents are liable for  income tax only on income accruing from a South African source. For example, if the property  is rented, the rental income will be subject to South African income tax.

 

On disposal of the property, the non-resident will be liable for payment of capital gains tax. For property registered in the name of an individual, 25% of the profit will be taxed at the individuals marginal income tax rate. The maximum marginal rate is currently 40%, which  translates to a maximum flat rate payable of 10% of the capital gain.

 

Until recently, non-resident sellers were obliged to register as taxpayers in the year of disposal of their immovable property in South Africa. However, this was not being done and the SARS were not able to collect tax that was due and payable. Accordingly, measures  have been introduced which will tighten the tax collection net considerably. In terms of  new proposals to the capital gains tax legislation, an obligation will be imposed on any  purchaser of property from a non-resident for a price exceeding R2 million to retain a percentage of the purchase price and to pay it over to SARS within 10 days  of the date of transfer of the property. The amounts that will have to be retained are:


5% if the seller is a non-resident individual


7.5% if the seller is a non-resident company


10% if the seller is a non-resident trust.

 

This payment will form an advance collection against the non-residents income tax liability for the year of assessment in which the property is sold.

 

Finally, it is important to note that a non-resident who has not permanently immigrated to South Africa will be considered a resident for income tax purposes if he or she spends more than a certain length of time within the country. This is known as the physical presence test? and is calculated in terms of days spent in the country over a three year period. No tax is levied on foreign pensions.
 

What about estate duty in the event of death?

 

Estate duty is presently calculated at 20% of the dutiable amount of an estate. However any inheri-tance bequeathed to a surviving spouse is not sub-ject to estate duty. Non-residents, like South Africans, are entitled to a rebate of R2.5 million on their dutiable assets; however, unlike South Africans, this rebate is limited to assets situated in South Africa.


 

We trust that the aforegoing has addressed at least some of the questions and concerns that non-resi-dents interested in purchasing property in South Africa might have. However, should you wish to dis¬cuss any of these or other issues further, we urge you to contact one of our conveyancing attorneys on our 24 hour hotline service.


 

Disclaimer: The material contained in this article is provided for general information purposes only and does not constitute legal or other professional advice.

Monday, 15 February 2016 12:15

Property Transfer Process South Africa

Before signature of an Offer to Purchase the purchaser should verify the following:

Monday, 15 February 2016 09:50

Understanding a usufruct in South-Africa.

A Usufruct is a legal institution in which someone, who is not the owner, is given the right to use and enjoy the profits and advantages of something belonging to another as long as the property is not damaged or altered in any way, for a certain period of time. At the end of this period, the property must be handed over to the person who owns it.

A usufruct is basically a life interest which someone acquires in terms of a will. It gives the usufructuary the right to use and enjoy specific assets of the estate for the term stipulated by the testator in the will. An example is where a husband bequeaths a residential property to his children in his will, but stipulates that his wife must/may enjoy usufruct until the day she passes away. In this way he ensures that his wife has the use and enjoyment of the property.

Rights and Obligations of the Usufructuary.

The usufructuary is required by law to act as a diligent owner that may not misuse the property. The usufruct must be used properly for the purposes intended. She has the right to either live on the property herself, or rent it out to generate an income, although the term of the rental agreement may not exceed that of the usufruct. She is responsible for paying the assessment rates and general daily maintenance costs, but is not obliged to do large-scale repairs resulting from normal wear and tear. Even if an item were to perish due to daily use, she would not be obliged to replace it.

The usufructuary is also not obliged to insure the property against fire, storm or other damage, although it is strongly recommended to do so, possibly in cooperation with the children/owners.

 

The 'rights' of the usufructuary could cause problems for the children, (the ultimate heirs), because while the usufruct is in effect, the children, have no right and authority with regard to the use or enjoyment of the property. Although it was bequeathed to them, it is subject to usufruct by their mother. They have to refrain from interfering; although they naturally have the right to protect their interests should the usufructuary misuse the property.

Maintenance or repairs and insurance premiums will be for the heirs (the childrens) account, and they are obliged to ensure that the property is in a liveable condition at all times. This may also cause financial strain for the heirs, as there is often not enough money available to finance such repairs. It is extremely important that the testator (the husband) who bequeaths usufruct should make financial provision for the maintenance of the usufruct asset. Otherwise he could put unnecessarily burden on the heirs or even cause them financial problems. A life policy is a very cost-effective way of doing this.

 

The usufruct lapses when the usufructuary passes away. If the heirs die before the usufructuary, their share of the usufruct assets is transferred to their heirs, but remains subject to the existing usufruct.