Foreigners: Home Loans & Buying Property in South Africa

President Zuma's SONA 2016

“I also announced the Regulation of Land Holdings Bill which would place a ceiling on land ownership at a maximum of 12 000 hectares and would prohibit foreign nationals from owning land. They would be eligible for long term leases. The draft Bill will be presented to Cabinet in the first semester of the year.” – President Zuma during his 2016 State of the Nation Address

 

President Zuma’s 2016 State of the Nation Address raised eyebrows among property investors and professionals when he again mentioned his intention to introduce policy to limit foreign nationals to long term leases of land instead of outright ownership. These kinds of statements, and let’s not forget the recently passed Expropriation Bill, are widely seen as undermining investor confidence (property rights general being understood to be fundamental to an economy) which is the exact opposite of the stated intention of government.

But before we roll our eyes at yet another gaffe from the executive we need to face the reality that foreign ownership of property is a contentious issue across the world, even among developed nations. For example, in the great mega-cities of London and New York purchases by foreigners have sky rocketed over the last decade and this has, increasingly, been blamed for massive increases in property prices that have left locals out in the cold. This in turn has resulted in increasingly loud calls by some politicians to curtail foreign ownership of property in these cities.

Certain parts of the property market in South Africa (think Clifton) have also seen similar surges in foreign ownership as well as the seemingly related property price spikes. But South Africa also has to contend with the legacy of colonization and Apartheid: systems that saw land ownership as both an incentive for and a tool of racial oppression. Millions of dispossessed and landless South Africans have cried out for decades for redress and it is therefore not surprising that the ANC government should attempt to satisfy (or at least be seen to satisfy) this large portion of the electorate.

Before we all panic about a Zimbabwe style land grab or the cutting off of foreign investment it is important that we keep in mind the fact that despite President Zuma’s occasional mentions of curtailing foreign land ownership this has, as yet, not resulted in any real policies being tabled. It is also important note that the Expropriation Bill, which does not target foreigners specifically, must still be signed into law by the President, something that can take many months.

So, there are potential reforms and controversies on the horizon, true, but what about right now? How can foreigners purchase property? Can they apply for home loans?

Foreign national home loans and property purchases:

South African banks place foreign national home loan applications under 4 broad categories. Each category and, in some cases each bank, has its own set of (stringent) criteria.  These categories are as follows:

1. Non-resident

Non-Residents are restricted in their borrowing to a maximum of 50% of the purchase price. In many cases the banks will not even consider lending this amount as they view non-resident foreign nationals as a high risk.

In order to apply for a bond the non-resident will need to:

  • provide proof of earnings (including payslips and bank statements)
  • comply with the Financial Intelligence Centre Act (FICA). Each non-resident will be scrutinised and assessed to determine the likelihood of criminal activities (like money laundering).
  • The non-resident will also need to open a local bank account (usually with the financial institution that approved the bond)

The remaining 50%, plus all transfer and bond registration costs must be brought into the country from a foreign bank. These funds can be transferred from outside the country into the trust account of the estate agent or the conveyancing attorney where they will hold the money until instructed to make a payment to the seller. This is a fairly secure system as both estate agents and attorneys are subject to Fidelity Fund rules. The Fidelity Fund offers protection against theft and/or negligence on the part of the agent or attorney as.

IMPORTANT THING TO KEEP IN MIND:

When a non-resident transfers funds from a foreign source into a South African bank account a record of this exchange is generated. This is called a “deal receipt” it notes the date, time, the exchange rate at the time and the amounts involved in the transaction. It is an important document as it will have to be presented when the non-resident sells the proprty and wishes to repatriate his funds, and will be used to determine the Capital Gains Tax payable when the non-resident eventually sells the property.

ANOTHER IMPORTANT THING TO KEEP IN MIND:

In South Africa the seller nominates the attorney who will attend to the transfer of the property though the purchaser can make it a condition of their offer that the seller accepts the purchaser’s choice of attorney. Regardless of who nominates the attorney the purchaser is responsible for the costs involved in the transfer (including transfer attorneys fees and transfer duty).

2. Temporary Residence Permits

The applicant:

  • must have a valid Work permit which has at least three years remaining before its renewal date
  • at the time of the bond application must be working for the same employer reflected on the Work Permit.

IMPORTANT THING TO KEEP IN MIND:

Most banks restrict home loans for Temporary Residents to 50% of the purchase price of a property but FNB currently offers 75% if the applicant has banked with them for the minimum of a year. These terms are fluid, however, and the banks can change their policies at any time. If you are a foreigner (or have a foreign partner) and you are looking to purchase a property and apply for a home loan it is CRITICAL that you approach a reputable and experienced mortgage originator who will provide you with the very latest information.

3. Permanent Residence Permits.

In most cases, a permanent residence permit will be issued to foreign nationals who have been in South Africa with temporary permits for at least five years.

Holders of a Permanent Residence Permit can apply for a South African Identity document.

This will reflect that they are non-South African citizens.

The Permanent Residence Permit confers on holders the same rights to mortgage loans as apply to bona-fide South Africans (i.e. they are not restricted to 50% loans.)

However, some banks will not exceed the 50% loan-to-value until the applicant has been issued with the South African green bar-coded identity document.  This often places the applicant in an invidious position because Home Affairs has been known to take more than two years to issue such identity documents!

Big 4 bank policy with regards to permanent residents in South Africa. If you would like the policies of smaller lenders please contact us.

FIRST NATIONAL BANK :

Restricts its mortgage lending to 50% if the Permanent Resident applicant does not yet have his SA identity document.

Applicant must bank at FNB.

FNB will consider more than 50% but approval will be  ‘conditional on Identity document being issued prior to registration of the bond”.   (Such registration could be delayed indefinitely, however, as Home Affairs often takes more than two years to issue the identity document!)

NEDBANK:

Maximum 50% mortgage lending.

Applicant must preferably bank at Nedbank.

ABSA:

Normal lending will apply even if applicant not yet in possession of S A green bar-coded identity document.

Applicant must preferably bank at ABSA.

STANDARD BANK:

Normal lending will apply even if applicant not yet in possession of S A green bar-coded identity document.

Applicant must preferably bank at Standard Bank.

4. South African citizenship

If and when a foreign national who qualifies for permanent residency renounces his previous citizenship, s/he can attain South African citizenship.

If his/her country of origin allows dual citizenship, s/he can hold that citizenship as well as South African citizenship.

These individuals are no-longer considered to be “foreign nationals” and in these cases normal lending criteria applies.

Last thoughts…
The inefficiencies and very lengthy delays at Home Affairs, encountered not only on first-time permit applications but also on renewals, as well as some banks’ intractable treatment of holders of Permanent Residence Permits who have not yet received their identity documents, makes it extremely difficult for these individuals to access mortgage finance.

South Africa is desperately short of qualified people and we should be trying a great deal harder to assimilate them and assist them to become homeowners.

 

Questions? Please feel free to contact De Mink Property Finance for expert advice on all aspects of mortgage lending in South Africa.

 

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