A US client recently presented me with a question when we were completing their offer to purchase. A very crucial and valid question.
“How would American citizens most effectively purchase property in Cape Town, South Africa, from a tax standpoint”
This question may appear straightforward, but even local investors occasionally find it challenging. Consider yourself fortunate if you are familiar with our real estate terminology and understand the tax implications for you as an investor when disposing of a prime residence, investment property, or secondary home. Navigating real estate in a foreign country can be challenging due to unfamiliar terms and processes. If you need essential advice but don't know how to ask, a professional realtor can help bridge that gap – understanding the question before it is voiced correctly made all the difference for my buyers that morning.
What made this more difficult for them to understand was the fact that they were purchasing land instead of a home or an apartment. Buying land now, building a home in the future, and later selling a home in Cape Town while still owning a home in the US can result in some confusion about how South African law might be interpreted. My recommendation was buying as a primary residence, not an investment, as they will be living there continuously for approximately eight years, give or take.
Let’s examine the insights from professionals, including legal and tax consultants.
“Living in the house once it’s built and using it as a holiday home or a part-time residence, then classifying it as a primary residence might be simpler from a capital gains tax standpoint if they ever sell down the line.” “Treating it purely as an investment property, renting it out and just holding onto the land and the house as an asset—then there might be some different tax implications and maybe even some advantages in structuring it that way.”
From the above, it is clear that any person would conclude that there are more advantages to selling a home bought as an asset or investment. Wrong. Here is the full answer from a tax consultant's perspective.
“Generally speaking, if the property is considered their primary residence when they eventually sell it, then there’s usually a more favourable capital gains tax exemption or at least a reduced portion of the gain that gets taxed. So if they’re planning to use it as a residence even part of the time, that could definitely be a tax advantage compared to a purely investment-classified property. “ Sourced and written by Drickie de Jager - theRE/MAXlady, July 2025
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