Access Bonds / Mortgages – South Africa

Obtaining an access bond / mortgage for immigrants to South Africa, or foreigners wishing to purchase a holiday home, brings to the fore a number of unique issues that a South African Resident or citizen does not need to address.

In some cases, even when a property is being purchased for cash, registering an access bond/ mortgage may still be appropriate.

  • The impact of the consumer credit act on foreigners has been severe. Non residents now find that obtaining a simple car loan can be difficult.
  • For homeowners looking to raise funds against their property for improvements or realizing some of their capital find bond applications a myriad of issues and red tape.
  • Cash flow is extremely hard to budget when moving to a new country. Unexpected expenditure or opportunities can cause the need for instant cash.

Access bonds can be viewed as a type of credit line. The below example shows an instance whereby it can be advantageous to register a bond at purchase even when the property was bought for cash.

Mr. Jones purchased his home in Cape Town in May 2006 for R3 million cash. At this stage the property was designed as a holiday home whereby Mr. Jones and his family could spend 3 months a year in South Africa.

Although purchasing for cash, Mr. Jones registered an access bond for R1.5 million, over 20 years.

On registration Mr. Jones immediately repaid R1.3 million of the bond – leaving with an access facility of R1.3 million.

Whilst not using the property, Mr. Jones rented it out and he was able to offset the interest charges on the outstanding R200,000 against income tax.

In July 2007, Mr. Jones decided to further invest into South African property, but did not wish to transfer further funds into South Africa to fund the purchase. He found a flat in Cape Town whereby the seller needed a quick sale. Mr. Jones was able to instantly access the remaining R1. 3 million allowing for a keenly negotiated sale price.

The above is only one example of where having a registered access bond can be useful, other situations can be:

  • The needs to raise funds for car purchase or school fees
  • Taking advantage of exchange rate fluctuations
  • Investment into a business
  • Access to cheaper capital is required
  • Employment situation likely to change

In summary access bonds can be viewed as a credit facility, whereby the bond holder is able to draw down on any unused amount of the bond facility and repay it whenever cash flow allows.

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