South Africa

Property sector bears burden of stricter financial controls

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The South African government is stepping up the fight against money laundering and terrorist financing, and property transactions are being affected.

In February, the international Financial Action Task Force (FATF) added South Africa to its grey list – countries that are under increased monitoring but which have committed to working with FATF to improve their anti-money laundering systems.

This week, the head of the Financial Sector Conduct Authority, Unathi Kamlana, said that his priority is to get South Africa removed from the grey list within 24 months. According to Kamlana, his organisation is already moving to hire more people.

What does that mean for the property sector?

The changes being brought in affect overseas transactions more than any others. Since last month, these must go through the new Approval for International Transfers (AIT) process. Tax residents can send up to R1 million in a single year without applying to the South African Revenue Service, but must get approval for any transactions over that limit. Meanwhile, non-tax residents must get approval for any cross-border capital transfer regardless of the amount. Applicants are required to provide information including the source of the funds, the identity of the recipient, and the purpose of the payment.

Property professionals and investors are also likely to be affected. The R1 million limit is enough for many types of business payments, but the overseas transfer of funds from selling a property is likely to need the AIT process – the average house price in South Africa stood at over R1.4 million in Q4 2022.

South Africa has few restrictions on foreign buyers of properties, and foreign investment is an important source of income for developers and estate agents – to the point that some agencies specialise in working with overseas buyers. For them, the new AIT process means more paperwork, more often.

On the other hand, combating money laundering and terrorist financing is a non-negotiable goal, and South Africa’s FATF grey list status could itself be deterring foreign investment. Foreign governments and financial institutions may impose extra scrutiny or restrictions on investment in grey-listed countries. Restoring South Africa’s reputation for robust anti-money laundering measures and getting off the grey list could well be worth the extra administrative cost of new compliance measures.

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