According to Lightstone, in 2024 foreign buyers accounted for 40% of all property purchases exceeding R10 million, underscoring the growing appetite for high-end real estate. The proportion of non-resident foreign buyers also rose from 2.9% in 2019 to 3.7%, driven by lifestyle appeal, favourable exchange rates and attractive investment returns.
In response, property developers are expanding their portfolios to include residential, commercial, retail and mixed-use developments tailored to this demand.
These transactions are governed by exchange control regulations administered by the South African Reserve Bank (SARB). These rules regulate the inflow and outflow of funds and are automatically triggered when foreign capital is used in a transaction. Non-compliance can result in delays, penalties or complications with future repatriation of funds. It is therefore critical for property practitioners, developers and foreign investors to understand and adhere to these regulations from the outset.
How buyers are affected
Exchange control regulations apply when:
- The buyer is not ordinarily resident in South Africa;
- The purchase is funded using money introduced from abroad; or
- The buyer is a foreign individual, company, or trust.
In such cases, the receiving bank must issue a certificate or receipt confirming the introduction of foreign funds. This documentation is essential to ensure that foreign investors can repatriate the proceeds upon resale of the property or transfer rental income abroad, provided they remain tax compliant. Early compliance facilitates a smoother transaction and avoids complications later.
How property developers and practitioners are affected
Property developers and practitioners may receive funds directly from foreign investors. Where they do, it is crucial that they ensure full compliance with exchange control requirements. Given the complexities involved, property developers and practitioners are strongly advised not to accept foreign funds into their personal or business accounts. Instead, all payments should be routed through the attorney’s trust account to ensure legal compliance and protect both parties.
What foreign investors and property practitioners should do before a purchase
Legal clarity is essential at the outset, particularly for foreign investors, to satisfy bank requirements regarding the introduction of foreign funds.
- If the seller is registered as a VAT vendor, the purchase price will typically include VAT, and no transfer duty will be payable. This must be clearly specified in the offer to purchase.
- If the seller is not a VAT vendor, transfer duty will apply.
- Foreign investors should account for both transfer duty and VAT by introducing sufficient foreign funds to cover both the purchase price and transfer duty or VAT (whichever is applicable).
Foreign investors must open a non-resident account with a registered South African bank unless they have an existing local account. Funds must then be transferred from a foreign account in the name of the foreign investor into their non-resident account in South Africa. The funds are then converted into South African currency and paid into the attorney’s trust account. The attorney then makes payment to the seller upon registration of the property.
In instances where the foreign investor does not hold a local or non-resident bank account, payment may be made directly into the attorney’s trust account. However, strict compliance with FICA requirements remains mandatory. The source of funds must be clearly verified and approved prior to the transfer of any monies.
It is important to note that complications related to exchange rate fluctuations can result in financial losses when the property is eventually sold. Additionally, payments made by third parties may trigger regulatory scrutiny and could be subject to a SARB application process, potentially taking up to six weeks for approval as a loan, among other possible complications.
Documentation required for FICA compliance for foreign investors
To comply with the Financial Intelligence Centre Act (FICA), foreign investors must provide the following documentation:
- A certified copy of their passport or identity document;
- Proof of address abroad; and
- Source of funds (e.g. bank statements, employment contracts).
Please note that the required documentation may vary if the purchasing party is a foreign company or trust. In such case, the appointed conveyancer will provide specific guidance based on the nature of the purchasing entity.
While the exchange control process may seem cumbersome, it is intended to safeguard South Africa’s foreign currency reserves and ensure compliance with tax and regulatory frameworks. When handled correctly, foreign investment contributes significantly to the real estate sector’s growth and benefits both foreign investors, property developers and property practitioners. By collaborating with experienced conveyancers and adhering to SARB and South African Revenue Service regulations, property practitioners can register sales more efficiently, and foreign investors can invest confidently, knowing their funds are secure.
