June 03, 2024


Foreign Loans in Real Estate: Navigating the Regulations of Incoming Funds

Foreign Loans in Real Estate: Navigating the Regulations of Incoming Funds

Investing in property can be a lucrative venture for both residents and non-residents alike, but navigating the exchange control regulations regarding cross border funds coming into South Africa can be daunting.

When an individual or institution makes the decision to purchase a property in South Africa with loan funds from overseas, the flow of funds into South Africa will be regarded as a Foreign Loan.

Foreign Loan funds can be structured in various ways according to the loan agreement between the non-resident lender and resident borrower. The loan amount can be in South African Rand (ZAR) or foreign currency and can be interest-bearing or interest-free. It’s important to note that while the lender sets the interest rate, the South African Reserve Bank has limitations on the maximum allowable rate.

Conditions of an Approval

Securing approval from the South African Reserve Bank (SARB) before transferring foreign loan funds into South Africa is an essential element of ensuring compliance with Exchange Control regulations.

Once approval is obtained by the South African Reserve Bank, the non-resident lender can transfer the funds into South Africa in the currency that was agreed upon as per the loan agreement. The funds must be transferred from an account in the name of the non-resident lender to a rand denominated account in South Africa and cannot be received into a foreign currency account.

In accordance with the approval, the South African resident has a drawdown period of 12 months to access the loan funds. The repayment schedule can commence after this 12-month drawdown period, providing flexibility in managing the loan.

The processing timeframe for this type of application typically ranges from 2 to 6 weeks. It’s important to note that this is an approximate timeframe, and the actual processing time may vary depending on the complexity of the application and any additional information that may be required by the South African Reserve Bank.

Once you’ve completed these steps, the process for purchasing the property follows the standard procedures, which involves finding a suitable property, negotiating terms with the seller, and going through the conveyancing process.

Repatriating Sale Proceeds: Understanding the Limits

It’s important to be aware of limitations on repatriating funds when the South African property is sold. Regulations restrict the amount of funds that can be sent back offshore to the non-resident lender for the repayment of the loan. The South African resident will be able to repatriate the original loan amount (principal) that was provided, along with any interest that has accrued on the loan. However, any profit made from the sale itself cannot be repatriated as part of the foreign loan.

How Currency Partners can Assist with Inward Foreign Loans

Understanding the regulatory framework is crucial for property investors. By carefully evaluating requirements and limitations, borrowers can make an informed decision and leverage foreign loans to fulfil their financial objectives.

Currency Partners simplifies the process of acquiring an approval for an Inward Foreign Loan by guiding clients through the South African Reserve Bank application procedure every step of the way. This includes assisting clients with completing the necessary forms.

Our expertise ensures adherence to compliance standards, facilitating a smoother path towards your property investment objectives.

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

We look forward to partnering with you and saving you time and money.