When it comes to buying property in South Africa, there are a couple of different options for ownership. There are four different ways to buy a home in South Africa. However, deciding which suits you needs to be done with caution, as each comes with advantages and disadvantages.
These options are afforded individuals because the law of South Africa recognizes different types of "persons." From a natural person to a juristic person, each has its own rules and guidelines to follow when purchasing the land.
Because of this, you need to be well versed in the different types of property ownership in South Africa before you make your final decision. But before we dive into that, let's look at why South Africa is a great place to invest in property.
Why Buy Property In South Africa?
Purchasing any type of property is a significant investment, whether it's a house, plot of land, or commercial warehouse. It's especially challenging when you're opting to do this in a foreign country. Before deciding where to buy, we will look at why buying property in South Africa is so great.
The following reasons are just a few of the reasons why buying property in the country is such an excellent investment:
Stability - There are a lot of places that you can invest your money in to see a return. You can choose to play the stock market or choose a more stable option and purchase real estate. But when doing this, you also need to be careful of where you're choosing to do this. South Africa has a relatively stable market, which means it's a safe investment.
Property Cycles - There's a high need in South Africa for property. By investing in a piece of land or home in this amazing country, you will be able to take advantage of the entire property cycle. This, of course, means that you're going to get a high return on anything real estate you invest in, in South Africa.
Exchange Rate - The economy of South Africa is the second strongest on the African continent, so it's favorable for investing. On top of that, the exchange rate is highly advantageous to foreign individuals looking to invest in real estate in South Africa.
No Taxes - There are many countries where you have to deal with extra taxes for property purchases. But in South Africa, there are no additional property taxes, making it an even better option when putting your money into real estate.
Growth Potential - With a strong economy and its continual growth, it is advantageous to invest in real estate in South Africa because there is high growth potential.
Types of Property Ownership in South Africa
Now that we've talked about the advantages of investing in property located in South Africa, we want to talk about the types of property ownership in South Africa. As we said, there are several different categories, and they include:
When looking at the types of ownership, a natural person may be the most common option. This term signifies an individual not backed by a company or other legal entity that opts to purchase a home.
When it comes to this type of ownership, the person will pay all the transfer fees and other purchase costs. Typically this is done on a sliding scale, depending on the property's value. One word of note is that if the property is the primary residence of this natural person, then the CGT will not be charged.
Of course, owning a piece of land under this ownership type does come with a few cons. If you are in financial trouble with your business, it could potentially be on the chopping block when it comes to creditors collecting. Also, if it is not a primary residence, you will have to pay the taxes and fees.
As a private company, you can also purchase land in South Africa. You will be responsible for paying the transfer duty like a natural person in this type of ownership, but the seller will be forgiven this fee. There is also a chance that you'll get a zero-rated for the VAT if it is part of a rental portfolio like a guest house.
As a private company, you'll end up paying more CGT as well as income tax. On top of this, other taxes will be levied against you. However, buying as a private company will allow you to purchase properties with up to 50 shareholders. This will alleviate some of the debts you and the company incur, which is always an added benefit.
In 2008, the South African government introduced a Companies Act that reduced the number of closed companies. However, there are still some that exist, and these can still buy property.
One of the significant differences between purchasing property as a closed corporation instead of a private company is that only ten natural persons and financial statements need to be handled by the accountant. You won't have to audit finances, and this reduces extra fees.
The last option is a trust. This is a legal entity that is created by a settler as well as trustees and beneficiaries. By doing it through this, the property will not be part of an individual's estate, which will alleviate the estate tax upon death. This option will also protect the land from any type of debt collection or creditors.
However, this form of property ownership does come with the disadvantage of having a high rate for the CGT. Also, the trust's founder cannot have control over the property, which means that you will incur extra fees as you'll have to have a property management team to monitor the investment.
Each of the types of property ownership has its own advantages and disadvantages. Choosing carefully which one will benefit your investment that can lead to the highest return is vital. We hope that by laying out a few of the details, we've helped you with this process.