Finance Minister Concerned On Home Affairs’ Impact On South Africa Economy

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Finance Minister Enoch Godongwana was spot-on with his assessment –

“We are clearing the backlog in work visa applications and are implementing the recommendations of the skilled immigration review.”

Cabinet Ministers generally stick to their own turf, being on the same team. When they publicly comment on another, it is generally positive or showing that they work together. There must have been a very good reason for the Budget Speech, being the most watched annual event of South Africa, to comment on Home Affairs troubles.

Why is this so Important?

The South Africa work visa system is currently in the worst shape it has been, and this is an Eskom complex problem to resolve. Foreign nationals are mostly not getting their work visas correctly issued and in timely and correct manner. This is not good for South Africa, as it makes the country less investor friendly. Other countries get certain visa categories issued at record speed and with high proficiency. The current system places foreign investors in a difficult spot, as they need to be prepared for a frustrating process and a bit of a fight to get their visa. Whilst certain sections of Home Affairs and Embassies are world-class, this is more due to the quality of the individual official involved, as opposed to the system.

What has the Minister of Home Affairs been doing?

He has been doing a good job, but he is up against heavy odds. The courageous decision was made by the Minister early in 2022 to implement centralized adjudication, meaning the work visa approvals were taken away from Embassies and taken over by Head Office. This decision was explained to be for two reasons, those being (a) to ensure that there is consistency in the documentation which Embassies require as well as to address various inconsistencies in Embassies throughout the immigration process, and (b) to address the matter of corruption at various levels.

We can attest that this decision was underpinned by valid reasoning.

However, the upshot hereof has not been good for the Minister, the Department of Home Affairs and most importantly international employers. It appears from the very limited number of visas which were processed, that the initiative failed. Various directives were issued in this regard and to the point where the work visa adjudication process was handed back to Embassies on new submissions. The Embassies have not taken back the Head Office submissions during the directive period, so these remain with Head Office according to the certain Embassies. However, Head Office confirms that Embassies may proceed to adjudicate on these matters where they have not had feedback from Head Office on an outcome. This misalignment continues to delay the backlog on these applications.

 The Head Office has informally communicated some deadlines to clear their backlog, but this process is slow. Meanwhile, new applications at Embassies have the same challenges as before and Embassy service has declined. There remains a couple of excellent countries where the Embassy staff are outstanding. However, the practical outcome is that there has been a marked deterioration compared to times prior to the Ministerial centralisation intervention.

Is there hope for Home Affairs?

The main problem is new submissions being done, whilst older submissions are not getting closed. Where a system is under pressure, you are dealing with officials who must put out fires, and they are under constant pressure. Unfortunately, we have also seen that this pressure has resulted in various unwanted behaviours coming through such as rejections for not good reasons and request for information which are outside the law; which appears obvious “buying time” tactics.

 We do not believe the system will get better anytime soon and due to the sheer quantity of the historical backlog.

 Our recommendation to clients is to have a very clear Home Affairs submission strategy and that there is a clear roadmap or project plan for each submission. In the current environment, each application must be commenced as soon as possible, the steps must be proactively planned, and the standard of submission must be at a level, addressing the nuances of each category permit and Embassy specific requirements.

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SONA Foreign Talent Announcements Enticing, But Are They Realistic?

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However, she warns that any advantage to be gained will depend on how well the proposals are implemented, how soon and if the current visa system can support them. “Whatever the improvements we can hope for, employers need them yesterday,” she says.

Xpatweb’s respected annual Critical Skills Survey has been running for the last 5 years and consistently indicates that over 80 percent of businesses struggle to recruit skilled talent locally. So, the only way to satisfy their operational needs is to source it internationally.

The proposals put forward by the President include:

A more flexible points-based system to attract skilled immigrants

Several other countries, notably Canada and Australia, use a points-based system that assigns points to selected criteria, such as education level, years of experience, wealth, etc. If the accumulated points pass a minimum threshold, a candidate qualifies to enter the country.

“We currently have fairly rigorous requirements to bring skills into South Africa, so a ‘more flexible’ system suggests that certain of these will be eased to speed up the entry of suitably qualified candidates,” says Jacobs.

A trusted employer scheme to make the visa process easier for large investors

The Department of Home Affairs (DHA) already launched its Corporate Accounts Unit in 2014, dedicated to servicing corporates and multinationals based in South Africa.

“This certainly seems like an extension of that function to make it easier for these companies who need to bring in skills regularly and on an ongoing basis, so it is an extremely good development,” says Jacobs.

The streamlining of application requirements

It is on this point that Jacobs becomes less positive about the realities of these changes. “While the initiatives are to be applauded, their efficacy hangs on good implementation,” says Jacobs.

She highlights the backlog from the failed Central Adjudication system last year, leaving a large number of expatriates still waiting to be issued their visas.

In addition, Jacobs reports a tightening of the immigration regime over the last 12 months that has made it much harder to secure a work visa and that it takes much longer now for applications to be processed. She also sees the highest rejection rate in the last 15 years, often for arbitrary reasons.

“To provide the greatest benefit, the government must ensure there is an underlying system that aligns with and supports these proposals,” says Jacobs.

The introduction of a remote worker visa

Remote visas are a rapidly growing trend and are being introduced by many countries around the world. Apart from attracting the foreign income of digital nomads, the visa could serve as an incentive to foreign candidates whose spouse wishes to continue working remotely for their overseas employer.

“After COVID, we saw a massive increase in remote working and still deal with this daily as a consulting business, and we foresee this visa being immensely popular for the foreseeable future,” says Jacobs.

A special dispensation for high-growth start-ups

This proposal is very vague. It may refer to easing restrictions on business visa applicants or local employers importing foreign skills. This is provided, in either case, the intended business is a start-up and promises high-growth potential within South Africa.

“These kinds of applications must always be accompanied by a fact-based business plan, but we must also consider that the government will focus on the classes of business that promise greater economic growth and employment opportunities to locals,” says Jacobs.

Tentatively optimistic

For the most part, Jacobs is tentatively optimistic that, provided they are implemented correctly, the announced initiatives can bring welcome relief to employers hard-pressed to source critical skills.

Although this is a huge step forward for these employers, Xpatweb acknowledges the hurdles that still need to be overcome in this space.

“We will continue to act as an ambassador of the critical skills community, using our research and the results of our Critical Skills Survey to promote meaningful change with policymakers,” says Jacobs.

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South Africa Welcomes Foreign Property Investment Despite Widespread Global Restrictions

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“Foreign investors can enjoy greater freedom to purchase a wider range of properties in South Africa with fewer and lower investment requirements,” says Victoria Lancefield, Director of Expatriate Tax and Banking Engagement at Tax Consulting South Africa.

However, an important condition is that they bring funds into the country correctly. “Satisfying foreign exchange controls first will ensure one enjoys a seamless investment experience afterwards,” says Marisa Jacobs, Managing Director at Africorp Treasury.

A shrinking global market

The trend towards restricting foreign property investment can be seen around the world. In many countries, this is not new but amplifies already restrictive national and provincial/state policies on property ownership by non-residents.

The reasoning often presented by these governments is that excessive foreign ownership reduces the amount of residential property available to its citizens and drives up housing prices to their detriment. It is suggested that this results in higher levels of homelessness in their country.

“Even so, substantial restrictions are also placed on investment in commercial and industrial property, as well as land,” says Lancefield.

Canada

At the more severe end of the spectrum are countries like Canada, which recently imposed a 2-year ban on foreigners buying residential property within its borders from 1 January 2023.

Although there are fewer commercial property limits at national level, many provincial constraints do exist. For example, in Saskatchewan, foreigners are restricted to 10 acres of farmland.

New Zealand

In 2018, New Zealand banned all foreigners from buying local real estate.

In the same way, strict rules regulate investment in commercial property by non-resident and overseas persons, and even local agents must obtain government consent before buying on behalf of a foreign investor.

Australia

Although foreign investors may buy property in Australia, they must seek approval from the country’s Foreign Investment Review Board (FIRB) and face restrictive regulations on what and how much they can own, whether residential or commercial.

For example, new housing developments are capped at 50% foreign ownership to ensure there is sufficient stock for Australians.

In addition, from 1 January 2023, penalties have been doubled for foreigners who break residential property investment laws.

Mauritius

Even Mauritius, which actively encourages foreign investment in property, places certain constraints on residential property acquisition by non-residents.

Business property investors may be required to obtain special approval from the Prime Minister and Economic Development Board (ECB). They must also provide substantial supporting documents and are limited in the use and disposal of the property, as well as the business activities of the owning company.

These are just four examples of how foreign property investment is being limited in many countries around the planet. This is in stark contrast to South Africa, where overseas and foreign investors are considered no different from resident investors.

Investing in South Africa

Foreign investors are not currently restricted in the type or amount of property they may invest in. They can even buy property remotely over the Internet, without ever setting foot in the country.

Property development is on a continuous rise in South Africa, so there is no shortage and foreign investment is not a concern, rather it is welcomed for economic growth.  South Africa is reputed to have one of the best deeds registration systems in the world, making ownership easy, safe and secure.

According to Carl Coetzee, CEO of BetterBond, South African property remains a good investment for foreign buyers, in spite of economic upheavals. “South Africa’s housing market was able to weather the pandemic, showing resilience as a valuable asset class,” he says.

Instead of declining as expected, house price inflation increased, and the low prime lending rate of 7% made it easier for first-time buyers to invest in property.

With travel restrictions lifted, overseas buyers are once again seeing the investment potential of SA’s property market. This is due to the country’s attractive lifestyle, variety of properties, and good value for money compared to other markets with strong currencies. Hybrid working arrangements have also made it possible for people to live and work in South Africa either permanently or part of the year.

According to Lightstone statistics from 2021, Gauteng is more popular than Cape Town among foreign buyers. However, the Western Cape leads in property development, with Statistics SA reporting building plans worth close to R35 billion approved last year.

Cape Town is also Africa’s top spot for fintech investment and is named by travel experts as one of the 50 must-visit cities in the world. The city is considered the most affordable market for prime residential property and offers more space for money compared to other popular destinations.

“For example, USD 1 million buys just over 30 square metres of real estate in London and New York but 202 square metres in Cape Town,” says Coetzee.

Worth knowing

Non-residents may buy property in their own name or through a foreign company. In the latter case, that entity must be registered in South Africa as an external company and, if its shares are owned by a non-resident, it must appoint a public officer who is a South African resident.

When property is disposed of, the profits from the sale attract capital gains tax (CGT). Foreign investors must therefore register as taxpayers with the South African Revenue Service (SARS) in order to sell their real estate.

“South Africa does not use a flat rate for CGT like many other jurisdictions, so it is important that investors understand how capital gains are taxed here,” says Lancefield.

South Africa does not offer any visa-by-investment schemes, so a visa is not required to buy real estate. However, to live in their property, non-residents need to apply for one of several visas to enter the country, such as a business, work or retirement visa. This may seem inconvenient, but it means they don’t need to finance a large upfront payment that visa-by-investment schemes usually demand.

Lastly, foreign investors are subject to the same fees, costs and regulations as resident buyers, such as transfer fees. They are likewise legally bound by the contract but can sign the agreement in their own country before a Notary Public or at a South African embassy, depending on their region’s legal requirements.

Banking and foreign funds

Foreign investors may use their own funds entirely to buy a property or augment them with a limited loan from a South African bank.

To borrow from a local bank, they must first obtain a certificate from the South African Reserve Bank (SARB) verifying they are eligible for a loan. “Investors should not attempt this application without assistance as not following the process to the letter could delay their purchase,” says Jacobs.

Non-residents without work permits will not be granted more than 50% of the property’s purchase price. Non-residents holding work permits may be granted more than 50% but this is at the bank’s discretion.

Says BetterBond’s Coetzee, “Banks’ bond criteria for foreign buyers varies and they will generally only consider applicants who have banked with them over a certain period.”

However, he says, foreign buyers with an SA ID document or temporary residency could be granted a bond of up to 75% loan-to-value. If the main applicant in a joint application is the higher income earner and is an SA citizen or has permanent residency, the bank may consider a bond of up to 80%.

When applying, they must also adhere to the requirements of the Financial Intelligence Centre Act (FICA) for the purpose of preventing money laundering.

Due to the limitation on loans, investors often bring their own funds into the country to be deposited in a local bank account. If so, they should be sure to retain the deal receipt in case they want to repatriate these funds later.

These procedures are hardly restrictive to astute investors and common to many countries. “After fulfilling them, they are free to enjoy all that South Africa’s diverse residential and commercial property market has to offer,” says Jacobs.

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