Financial Issues

Who are the major shareholders?

The main shareholders are C&P Mulder Trust, Dopara Trust, Nyumbani Limited and Anchor Park Investments 73.

Will a purchaser be liable for the day to day costs of the farm?

No.

What will happen if the farming operation goes bankrupt?

The individual home owners are not liable financially or otherwise.

What rates and services charges will the purchaser pay?

Rates and service charges (such as water, sewer and refuse removal) will be payable to the HOA and will vary depending on the valuation, size and consumption/usage of each erf. The levies are expected to be in line with, or less than, those presently charged in Jeffreys Bay, as all profits made by the HOA will be ploughed back for the benefit of the residents.

How will the levies be determined?

The levies will be determined based on a formula including fixed and variable elements.  The fixed element will comprise 33.33% of total budgeted expenses and is shared equally by all members.  The variable elements will consist of two parts 33.33% of total budgeted expenses based on the size i.e. square metres of each erf or consolidated erven and the balance of 33.33% calculated on the original originally selling price or consolidated erven.

Which cost will NOT be included in the levies?

  • Private Electricity (i.e. electricity paid by pre-paid meters through the HOA)
  • Private Water consumption
  • Rates & Taxes
  • DSTV, Internet, etc.

Is the deposit paid for a stand refundable?

Only if the Seller is in breach.

Will there be interest on the deposit and where will it be kept?

The deposit will be kept by the Sellers Attorneys on an interest bearing trust account in the name of the purchaser and will be on call pending transfer of the stand into the name of the purchaser.

May the deposit be paid by bank guarantee?

No.

Will there be any Agent’s Commission payable, percentage and who will pay it?

6% plus VAT will be payable by the developer to sales agents.  Commission will be paid on successful transfer of the property into the name of the purchaser.

What currency restrictions are there with regard to the sale of properties in the Crossways Farm Village?

Neither the developer, CFV nor HOA can impose any restrictions, and at present there are no specific restrictions on bringing any capital into South Africa for non-residents of South Africa. Non-residents must however keep a record of the proof of the capital entering South Africa and what the capital will be allocated to. Generally the banks handle the approval of the capital entering South Africa with the Exchange Control Department of the South African Reserve Bank, and the banks will ensure that the correct forms and capital allocations are completed.

The proof of the capital and its allocation is required in order for a non-resident to obtain exchange control approval to remove the proceeds from the sale of the property out of South Africa should it at any time wish to sell its property.

Will the sale of immovable property attract capital gains tax in South Africa?

Yes. Capital Gains Tax (“CGT”) will be levied on the sale of any immovable property situated in South Africa in respect of all entities, for example non-residents, residents, companies, trusts, partnerships and foreign companies.

Each individual/entity and/or each resident/non-resident will be liable for CGT which is levied in different ways and at various different rates depending on the type of entity and the surrounding factual circumstances. For example, where the property was registered in the name of an individual, 25% of the profit will be taxed at the individual’s marginal income tax rate at an effective rate of approximately 10%. Where the property was registered in the name of a company or a trust, the profit will be taxed at an effective rate of 14% (in the case of a company) or an effective rate of 20% (in the case of a trust).

The South African Tax Authorities also recently introduced a Withholding Tax that obliges any purchaser of a property sold by a non-resident of South Africa for R2 million or more, to retain a percentage of the purchase price and pay it to the South African Revenue Service within 40 days after registration of the transfer.  If the non-resident seller is an individual, the amount retained is 5% and if the non-resident seller is another entity, the amount retained will be 10%. A major drawback of selling the property from a company is that it will effectively be taxed twice.  Firstly, the company will pay CGT (at 14%) on the disposal. Secondly, the distribution of reserves (after payment of any outstanding loan account) as a dividend will incur secondary tax on companies (“STC”), which is at approximately 10% on the amount of the dividend.  The effective tax rate (CGT + STC) of selling the property from a company is approximately 22%.  This will increase to about 23% at the end of December 2011 with the removal of STC and the introduction of a shareholder tax on dividends.

By contrast, the sale of the shares in the company which owns the property is considerably lower at an effective rate of CGT of 10%.

Will ownership of the property attract estate duty in South Africa?

Yes.  The property will fall in a natural person’s personal estate and based on the location of the property, estate duty will be payable to the South African Revenue Service.  Estate duty is currently levied at a rate of 20%.  The tax is also levied on the ‘dutiable amount of the estate’ exceeding R3.5 million.  Certain deductions are however provided.

Will ownership of the property attract transfer duty in South Africa?

As the purchase price includes VAT, no transfer duty is payable.

Bond Originators?

Yes.  Findex Port Elizabeth

What is the time limit allowed to the purchaser to get a bond?

45 days after acceptance of deed of sale (date of signature by seller)

Is there mortgage finance available to purchasers?

Subject to the purchaser’s financial standing, a mortgage bond can be registered over the stand as security for a loan to the purchaser. Non-residents purchasing property in South Africa may however only borrow up to a maximum of 50% of the purchase price from a South African Financial Institution, and the registration of the mortgage bond to secure the loan will be subject to exchange control approval from the South African Reserve Bank.

The remaining 50% of the purchase price will therefore need to be made up of foreign funds that the Non-Resident must transfer to a South African account (which is normally the trust account of the conveyancing attorney attending to the registration of the transfer of the property).

The total loan amount granted by the South African Financial Institution is however at the discretion of the financial institution and is subject to proof of income and compliance with South African anti laundering legislation as well as Know Your Client and other requirements.

The conveyancing attorney attending to the registration of transfer of the property and the Financial Institution providing the loan will explain the process and requirements in detail.

Has any arrangement been made with a financial institution to provide such finance?

Findex Port Elizabeth as the official bond originators will approach local banks that may be willing to provide financing to qualifying purchasers. However there is a limit to how much funding they can provide in total and to purchasers in general. They will therefore often require outside collateral security in support of any application from a purchaser for finance. It is best to discuss this with the financial institution in question should the purchaser decide to finance his/her purchase in some way.