October 26, 2023

Partners

Buying property in SA as an entity using a Foreign Loan

Buying property in SA as an entity using a Foreign Loan

Introduction

In simple terms, a foreign loan is when a person or entity borrows money from an individual or an institution located in another country, using a currency different from their own. This type of loan allows individuals or businesses to access funds from outside their own country for various purposes.

For example, a property investment where the property is purchased as an entity, but the funds are transferred into South Africa by an individual to fund the purchase. This is considered a foreign loan from the individual to the local entity.

Foreign loans can be a valuable source of finance for South African entities and property investors. However, it’s essential to navigate the intricacies of exchange control regulations and understand the risks and benefits involved. In this article, we will explore the key aspects of inward foreign loans from a non-resident to a South African resident. We will also outline the requirements and restrictions for obtaining a foreign loan through Currency Partners.

Inward Foreign Loans – Regulation and Structuring

In South Africa, foreign loans made by non-residents to residents are subject to exchange control regulations. All inward foreign loans from a non-resident are required to be placed on record with the South African Reserve Bank (SARB). These loans can be structured in various ways, such as in South African rands or foreign currency, and they can be secured or unsecured.

It’s important to note that foreign loan funds cannot be sent to a foreign currency account, the funds must be converted before being credited to the local entity or individual. While the interest rate is typically set by the lender, certain restrictions on the maximum interest rate is set by the SARB which applies to specific types of foreign loans.

Benefits of Foreign Loans for South African entities or individuals for Property Investment

Foreign loans open doors to exciting possibilities.  For property investment, they offer a unique set of advantages.  Borrowers gain access to foreign capital, lower interest rates compared to domestic lenders, and longer repayment terms, providing more flexibility in managing financial obligations.  

One noteworthy benefit is that when a loan is placed on record with the SARB for a South African resident individual, the repayment of the loan does not get recorded against the individual’s Single Discretionary Allowance. 

Understanding the Risks

As with any financial endeavour, foreign loans carry their share of risks. Currency fluctuations, for instance, pose a potential challenge. Changes in exchange rates between the rand and the loan’s currency can impact the final repayment amount, necessitating careful risk management.

How Currency Partners assists with Inward Foreign Loans

Currency Partners simplifies the process of obtaining Inward Foreign loans. We provide guidance and support throughout the South African Reserve Bank application process, which involves the client completing the necessary forms and providing supporting documents like the loan agreement.

Our experienced team ensures a smooth and efficient application process, typically taking 4 to 6 weeks for approval. Once granted, the approval is valid for 12 months from the date of issue, allowing borrowers ample time to make the most of their foreign loan.

By collaborating with Currency Partners, clients navigate the intricate exchange control regulations with confidence. Our expertise ensures compliance, making the journey toward realising your property investment goals that much smoother.

Navigating the regulatory landscape while understanding the associated risks and benefits is crucial for property investors. By carefully considering the requirements and restrictions, borrowers can make informed decisions and leverage foreign loans to achieve their financial goals.

For more information on Inward Foreign Loans, please contact our specialist team at enquiries@currencypartners.co.za or call +27 21 203 0081 or register here. Our team of experts is ready to assist you.

We look forward to partnering with you and saving you time and money.
SPEAK TO AN EXPERT