Sale of immovable property from a deceased estate
When an executor has been appointed by the Master through the issuance of Letters of Executorship, their primary duty is to finalise the administration of the estate as soon as possible. This includes taking control of the deceased estate assets, selling them if necessary to pay all estate liabilities, administration costs and estate duty (if any) and distributing the residue amongst heirs and legatees in terms of the provisions of the will or Intestate Succession Act. This article outlines the legal process involved in selling an immovable property from the deceased estate. In terms of Section 13(1) of the Administration of Estates Act (Estate Act), a person may not sign an agreement if they have not been issued with Letters of Executorship. The granting of Letters of Executorship is a crucial requirement as an agreement of sale will only be valid if signed by an executor who has been appointed by virtue of Letters of Executorship. The appointed executor will be authorised to market the property, sign the offer to purchase and sign all other transfer documents on behalf of the estate. Additionally, Section 42(2) of the Estate Act stipulates that an executor who desires to effect a transfer of any immovable property in pursuance of a sale shall lodge with the registration officer, in addition to any such other deed or documents, a certificate by the Master that no objection to such transfer exists. In practice, to apply for this certificate the following documents need to be lodged: An Application for Endorsement (JM33_42) completed and signed by an executor. Power of Attorney to Pass Transfer signed by an executor and bearing conveyancer’s certificate. Once approved, the Master will not issue a separate certificate but will instead place a stamp/endorsement on the Power of Attorney to confirm no objection to the sale. Written consent from all heirs confirming that they have no objections to the sale of the immovable property. If any of the heirs is a minor, consent must be provided by their trustees. A certified copy of the deed of sale. A certified copy of the title deed. Section 49 of the Estate Act is one other important section to consider when selling a property from a deceased estate. It states that If any executor or his spouse, parent, child, partner, employer or employee, or agent purchases any property in the estate which he has been appointed to liquidate and distribute, the purchase shall, subject to the terms of the law (if any) of the deceased and in the case of the executor who is the surviving spouse of the deceased, to the provisions of Section 38, be void unless it has been consented to and is confirmed by the Master of the court, or curator, purchases any properties which he has been appointed to administer, the purchase be void unless it has been consented to or is confirmed by the Master of the court. This section does not prevent an executor from purchasing property from the deceased estate, but it requires approval from the Master to ensure transparency and prevent conflict of interest. In conclusion, the executor plays a pivotal role in managing the estate’s assets, including the sale of property, but must adhere to the necessary legal requirements outlined in the Administration of Estates Act. The process involves obtaining the necessary Letters of Executorship, obtaining consent from heirs, and receiving approval from the Master of the High Court. By adhering to the steps as prescribed by the law, the executor ensures that the sale is conducted fairly, transparently, and in accordance with the law. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Reduce the pain of downscaling: Investing in a holiday home as a retiree
The decision to move out of a large residence in favour of a smaller or less expensive property, also known as down-scaling, is often viewed as a last resort in the face of mounting financial pressure. However, for many retirees, the decision to downscale is driven by the prospect of greater freedom. As one gets older, the responsibilities of maintaining a large freehold home and undertaking activities such as garden and pool maintenance, cleaning, and repairs, can become overwhelming. Still, many older individuals feel a natural emotional connection to their homes. After all, they’ve seen their children grow up in it, and they’re unwilling to lose these memories entirely. Thus, some retirees with cash to spare are opting for a ‘best of both worlds’ approach. This involves purchasing a smaller primary residence in a life rights estate or sectional title complex and converting their former home to a secondary residence or holiday home. The coast beckons As to the kind of retirement properties this demographic is purchasing, Light-stone data shows that the Western Cape is the only major region where properties in estates (55%) are more popular among retirees than freehold and sectional title homes. It’s no secret as to why estates are so popular among discerning retirees they offer safety, lifestyle, and a built-in community of like-minded individuals to ensure that new residents feel comfort-table and supported in their new life stage. Downscaling with the intention of making budget available for a holiday home is also proving to be a popular trend among South Africa’s retirees and the majority of them are heading to the coast. This is especially prevalent among those who own an inland property and are in search of more leisure activities. Data from ooba Home Loans shows that for all bonds granted between June 2021 and June 2022, 0.41%, 0.18%, and 1.04% were for holiday properties in the Western Cape, Kwa-Zulu Natal, and the Eastern Cape respectively. A home close to home Generally, retirees are purchasing holiday homes that are easily accessible. Those wishing to go down this path are encouraged to choose a holiday home within comfortable driving distance from their new retirement unit, to ensure that they are able to enjoy it regularly. In the Western Cape, for example, popular holiday destinations such as Langebaan, Hermanus, and Betty’s Bay are all less than two hours outside of Cape Town. Lightstone data shows that 57% of individuals who own two properties prefer to own these in the same province. Pros and cons of investing in a holiday home Of course, holiday home ownership as a retiree has its pros and cons, and there are a number of important considerations to keep in mind before embarking on this journey. Pros: Keeping a special family home intact: For those who are converting their prior primary residence into a holiday home, this decision allows retirees to return to the place that holds happy memories, and create new ones. Less day-to-day maintenance: Making a large home your secondary residence means that there will be less daily wear and tear on the home that will need to be addressed, especially if the house is occupied only a few times a year. Additional income: Should you wish to rent out your holiday home, this is a great way to earn passive income as a retiree. It’s important to remember that renting out your home comes with various day-to-day responsibilities such as regular cleaning and guest check-ins. It is therefore recommended that you hire reliable staff to manage these tasks, as they can become burdensome. A value-building investment: A well-located and maintained holiday home will only appreciate in value as the years go on, giving you a lucrative asset to leave behind for your loved ones. Cons: Additional security concerns: Crime is a reality in South Africa, and if a property is vacant for a large period of time, criminals may take note. Be sure to invest in a good security system and regular monitoring from a local private security company. Additional expenses: If the bond on your former family home is not paid off, or if you have purchased and financed a new holiday home, you will have to factor in monthly repayments that will be subject to interest rate increases. Additional responsibilities: Depending on the size, location, and whether or not you are renting it out, taking on the responsibility of a holiday home may reduce some of the ‘lock-up-and-go’ lifestyles sought out by retirees. Conclusion Retirees who are considering investing in a holiday home are urged to take into account the additional responsibilities that this will entail and, if possible, to find help in sharing the load. Be sure to speak to family members. If they wish to enjoy the benefits of a holiday home, perhaps they are also willing to help manage it. Your ‘Golden Years’ are meant to be a time of relaxation and pleasure and your seaside cottage should facilitate beach walks and sunrise meditations, not additional stress and financial pressure. WRITTEN BY GUS VAN DER SPEK Gus van der Spek is the owner of Cape Town-based retirement development Wytham Estate. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
Eviction Order Prior to Removal of Unlawful Informal Settlement Structures on Private Property: Is it Necessary?
Should a land owner obtain an eviction order prior to the removal of informal settlement structures erected unlawfully, and without the land owner’s consent, on his or her private property? When living in South Africa, the sighting of informal settlement structures being erected on vacant land is quite common. Unfortunately, these informal settlements are sometimes erected on private land and without the owner’s consent. The question arises whether the landowner can unilaterally, or with the assistance of the local municipality, remove these informal settlement structures without first obtaining an eviction order from a court and without any repercussions. The Prevention of Illegal Eviction from and Unlawful Occupation of Land Act[1] (hereafter “PIE”) is legislation promulgated in order to give effect to Section 26(3) of the Constitution[2] to ensure that no person may be unlawfully evicted from, and their home demolished without having an order of court stating to that effect. In terms of the PIE Act, the term “building or structure” is defined as to include tents, shacks, huts or any similar structures[3]. As mentioned above, informal settlement structures are mentioned in the definitions of PIE, which means that a person residing in such a structure is protected by PIE. Consequently, this has the effect that a landowner needs to follow the correct legal proceedings in order to obtain an eviction order from a court before he or she intends to demolish and remove such informal settlement structures from their property, even if the structures have been erected without consent. In the case of Ramahlele and others v Fischer and another[4], Mrs Fischer, the landowner, approached the local municipality who then assisted her with demolishing and removing informal settlement structures which kept being erected on her land without her consent. The landowner and the municipality brought the main application against the occupiers; however, the occupiers brought a counterapplication for their protection against unlawful dispossession of their structures, such application is otherwise known as a Mandament of Spolie. A Mandament of Spolie or a Spoliation application is based on a legal principle in South Africa which holds that a person is not allowed to take the law into their own hands and needs to follow the proper legal procedure to obtain the relief sought. The elements that need to be proved by the applicant for a spoliation order are first, that they had undisturbed and peaceful possession of the immovable or movable property and second, that the respondent unlawfully deprived them of such possession. In the abovementioned case, the municipality argued that they only demolished and removed the structures which were not considered “homes” as they were either incomplete or it appeared that the structure was not being occupied at the time when the structures were inspected.[5] The Court held that the reasoning of the municipality was fatally flawed and continued to state that if an informal settlement structure is complete, the piece of land of the owner can be regarded as being invaded, which then further results in the fact that occupation has occurred, then it consequently results that PIE and its provisions are applicable to protecting the occupiers’ rights to remain residing in the informal structure on the privately owned land.[6] The Court held further that the short duration of the existence of the informal settlement structures did not disqualify the structures from being regarded as “homes”. As these informal structures were regarded as “homes”, the Court stated that the demolishment and removal of the occupiers’ structures without an order of court resulted in them being deprived of their rights to be heard in a court of law in terms of PIE.[7] In conclusion, the Court ordered that the municipality be interdicted and restrained from evicting or demolishing the informal structures if they did not have an eviction order in place. The Court went further and ordered a spoliation order in that the municipality had to reconstruct and rebuild the informal settlement structures for the occupiers on the landowner’s land. Therefore, it is evident that the Mandament of Spolie can easily be utilised by unlawful occupiers to prevent landowners from removing them from their private land if the correct legal process is not followed in this regard and the necessary court order is not obtained. It is important to note that the Court did not condone the unlawful occupiers’ conduct, but merely, in its decision upheld the law as pertaining to the spoliation application brought by the occupiers. WRITTEN BY MARILIE BEUKES While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes and should not be construed as legal advice. [1] 19 of 1998. [2] of the Republic of South Africa, 1996. [3] Section 1(i). [4] [2014] 3 All SA 365 (WCC). [5] [2014] 3 All SA 365 (WCC) paras 75-76. [6] [2014] 3 All SA 365 (WCC) para 82. [7] [2014] 3 All SA 365 (WCC paras 96-97.
Navigating the real estate market in 2021
Many industries are piecing things back together again this year, as they try to recover from the effects of the pandemic or recreate themselves to remain relevant in a changing world. One industry that has been left unaffected to a great extent, and yet has had to re-create itself almost entirely in the same breath, is the real estate industry. As 2021 sets off, it’s important to understand just how the industry will shift gears in the months to come. The biggest factor that will influence the industry is the fact that the public is in need of more guidance and advice than before. The uncertainty that still surrounds the economic landscape and the future of the world as it battles COVID-19 means that people are more cautious when it comes making real estate and investment choices. The role of property practitioners is thus more vital than ever in supporting the public through this period of recovery. Property practitioners have a tough task ahead of them as they provide the public with confidence in their decisions, while also helping grow the market again so that that confidence is not misplaced. A vital part of this process, beyond the elbow grease and hard work that is already going into recuperating the industry, is the building of strong relationships with clients. Property practitioners may have acted as a “middle man” of sorts in many instances in the past, but their roles are being redefined as they provide more and more tailored services to those who are navigating the real estate landscape. With the past year obliging so many industries to re-evaluate their way of doing business, the real estate industry has also sought out more streamlined solutions that put less strain on property practitioners while offering the public more efficient service. A big role player in this process is the adoption of Customer Relationship Management systems that allow property practitioners to enhance the way they interact with both existing and prospective clientele. This is especially of use when it comes to the rental market, where a rotating roster of clients needs to be connected with. As a result of the continuing uncertainty and the weakness of the economy, the rental market is proving to be one of the most greatly affected. Where tenants are able to, 2021 will most likely find them choosing to continue renting where they currently are, opting for safety above prospects. Unfortunately, vacant rental properties could remain vacant for quite some time still as a result. This may be even more true for properties at the lower end of the price spectrum, as lower-income individuals have been some of the worst affected by the lockdown and TERS relief coming to an end. As more and more tenants conduct research regarding their financial futures, many may also realise their rental amounts are almost the same as bond repayments would be, leading them to reconsider the possibility of becoming homeowners and bringing stability to their lives amid the storm. As more South Africans re-evaluate their futures, with considerations such as work-from-home options becoming more prevalent, many people are looking for homes that will better suit their changed lives, and renting may simply no longer be the answer to those plans. All of this cements the necessity for property practitioners’ role in the months to come. If it is time for you to alter your real estate situation, enlist the guidance and advice of a trusted property practitioner to help you navigate whatever comes next. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Is your property Airbnb-able?
When deciding whether to become an Airbnb host, it’s important for you to understand how the laws work in your city. According to Brett Herron, the mayoral committee member for transport and urban development at the City of Cape Town, different holiday accommodation land-use types, such as B&Bs and guest houses, are regulated by the City’s zoning scheme, called the Development Management Scheme. If referring to Cape Town, for instance, the city has a Guest Accommodation Policy that sets out the guidelines that have to be considered when applications are made to obtain the necessary planning permissions. According to the Policy, if you wanted to provide a self-catering, flexible accommodation option in line with current trends for transient guests, visitors and tourists, then these are the guidelines that should be followed. Catering to guests’ needs In order to qualify, a building or group of buildings consisting of separate accommodation units rented for residential purposes, each incorporating a kitchenette / full kitchen, but may include an option of meals being provided communally to guests. This can also include communal areas for exclusive use by lodgers /transient guests, where guests can dine. Architecturally speaking When looking at the building structure itself, certain guidelines also have to be met. The form and scale of the development are determined by the development parameters of a particular zone (i.e. floor space, building lines, height) and the site’s context. No general restriction exists regarding the number of units that are allowed, but must be appropriate in the local context of the building/site characteristics and surrounding area. Restrictions on the number of units allowed per development may thus be imposed in certain cases. Location, Location, Location As long as there are no zoning restrictions or area-specific by-laws that prohibit you from short-term rental of your property, there really isn’t anything standing in your way. Criteria that should be considered, however, are as follows: Proximity to public transport routes, commercial centres and tourist activities; The character of the surrounding area and community; Mixed-use or commercial locations (including areas designated for high-density development) are encouraged. In many cities, it is required to register, get a permit, or obtain a licence before you can list your property or accept guests, and short-term bookings may be prohibited altogether. Local municipalities may also vary greatly in how they enforce these laws. But it’s important to remember that, for most, it is entirely possible to list your property on Airbnb. Once you decide to begin your journey towards registering an Airbnb, it is important to consult your local municipality to find out if there are regulations standing in your way. If you need assistance in starting up your Airbnb, do not hesitate to get in touch with us. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
The benefits of honesty in house-hunting
Estate agents play a vital role in the efficiency and ease of most real estate transactions. They are guides, advisers, companions, gurus, and partners to buyers, sellers, landlords and tenants alike. The strength of this relationship, however, is built on a foundation of open communication and transparency. When your estate agent is working off of lacklustre information, half-truths and muddled facts, the results can be disastrous for everyone involved. For landlords and sellers, regulations and standard procedures generally ensure that misleading information gets weeded out early in the process, meaning that agents can market properties accurately and honestly. Any defects and shortcomings of a property are disclosed beforehand and the selling/renting price is clear from the get-go. With tenants and prospective buyers, the grey areas begin to multiply rather quickly, as the individual’s word is all the estate agent relies on for much of the initial journey. Be certain of what you are looking for Tenants and buyers should consider the features they ideally want in their new home before getting in touch with an agent (or they should sit down and discuss these features thoroughly with an agent before the search begins). This is to ensure that the agent is able to perform thorough searches with meaningful consultation from day one. When the criteria for the search keep on changing, the agent will have to alter their approach continuously, wasting valuable time and resources in the process. When you find a property based on under-defined criteria, you may soon find that what you thought was a dream property can quickly turn to a nightmare if you don’t know exactly what you are looking for. So, take the time to really think about what you want, let your thoughts simmer, and make sure you would still want the property in a few months. The gist is, do not rush the process. Be honest about what you can afford When looking to rent or buy, it is important to be upfront (and realistic) about what you can afford. By putting up a charade and searching for properties far above your financial means, you will only be pulling wool over your own eyes as the purchase/rental agreement process will force the facts to come out anyway. The result, however, is a substantial loss of valuable time for everyone. Rather be honest from the start and find the property you know you can afford. Falling in love with a property that you cannot afford will result in you suffering the greatest loss as you are forced to watch what you’ve set your heart on go to someone else. The best advice is to find a property you love, in the price range you can afford, so that you can keep on loving your new real estate investment without having to worry about it crippling you financially. So, whether you’re buying, selling, leasing, or renting, our property experts are here to help you make the most of your real estate transactions, promising transparent and honest communication throughout the journey. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Buying or selling a home? Know the process
The transfer process is synonymous with building a house. The foundation must be laid and certain parts are built simultaneously in order for the process to be completed as one cannot be done without the other. There are many parties involved in a transfer process and each one has an important role to play. The following are the steps involved in the transfer of property: CONTRACT OF SALE The nominated transferring attorney, usually appointed by the Seller, acknowledges receipt of the instruction to all parties involved, being the Seller, Purchaser, and Estate Agent, if one was used. The transferring attorney peruses the agreement to familiarise themselves with the terms and conditions. The attorney makes a point of mentioning any suspensive conditions that may be listed in the contract sale, for example, the date of when the Purchaser shall confirm whether he/she has obtained a bond, should the sale be subject to the Purchaser obtaining a bond. ATTORNEY Once the Purchaser’s bond has been approved by the financial institution and the attorney is informed of this, the attorney shall request all supporting documents from the Seller and the Purchaser, such as FICA documents and any other necessary documents to proceed with the transaction. Furthermore, the attorney conducts a deeds office search to verify the property details that is being sold/purchased. The attorney shall, as soon as possible, contact the Seller’s financial institution, who has an existing mortgage bond over the property, to advise that the property is being sold. COLLECTION OF DOCUMENTS AND FIGURES This step follows from the above-mentioned, whereby the transferring attorney continues to gather all required figures, such as rates clearance figures and certificates issued by a municipality, and clearance figures from the Body Corporate or Homeowners’ Association, should the property be a sectional title or in an estate. Bond cancellation figures are requested from the bond holder, being the existing financial institution. The title deed is requested from the bond holder. The Seller must be informed to start obtaining the electrical compliance certificate, beetle certificate, and plumbing certificate, which are all required to transfer the property. COLLECTION OF PURCHASE PRICE AND COSTS The attorney must ensure the collection of the deposit, transfer duty, and conveyancer’s costs from the Purchaser and clearance costs from the Seller. The collection of documents and figures as well as the collection of costs run concurrently. DRAWING AND SIGNING OF TRANSFER DOCUMENTS The attorney commences drafting the transfer documents, which is the new deed of transfer, power of attorney, and any other supporting documents that may be required to be lodged to pass transfer. The draft transfer documents are forwarded to the attorney that is registering the new bond. The Seller and Purchaser will sign the transfer documents at the attorney’s office. PAYMENTS Upon receipt of the monies from the Purchaser as stated above, the attorney will pay the transfer duty to SARS in order to obtain a transfer duty receipt. The attorney shall pay the municipality and/or the Body Corporate or the Homeowners’ Association in order to obtain the clearance certificates. It is important to note that transfer will take place should these clearance certificates not be obtained from the appropriate body. PREPARING FOR LODGEMENT The conveyancer shall ensure that he/she signs the documents at the top right hand side of the first page of the deed of transfer, confirming that the conveyancer accepts responsibility for the correctness of the facts set out therein. A final check of all information required, all costs collected, and purchase price is secured and all transfer documents are prepared and correct. If another transaction is involved, such as the new bond, the attorney is informed that you are ready to lodge at the Deeds Office in order for both transactions to be registered simultaneously. LODGEMENT AND REGISTRATION If all requirements are met, the necessary transfer documents are lodged in the Deeds Office for the examiners to review the documents to ensure all legal requirements have been met to transfer the property. If the examiners are satisfied and the conveyancer is certain that transfer is ready to take place, he/she may register the transfer, meaning the conveyancer will sign the deed of transfer in the presence of the Registrar of Deeds and the Registrar will also sign the deed. This process from lodgement to registration takes seven to fourteen days. WINDING UP Once the transfer is registered, the conveyancer will notify the Seller, the Purchaser, the Agent, and any other relevant parties in writing that the transfer has taken place. The transferring attorney must now call up guarantees from the financial institutions or from the bond attorney to have the balance of the purchase price paid into the trust account, so that the attorney may proceed to effect payment to the relevant parties, such as the Seller and the Agent. Reference List: THE ABC OF CONVEYANCING by LIZELLE KILBOURN This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
The ups and downs of property co-ownership
Property ownership is no small feat. It is one of the most reliable forms of investment and one of the biggest items that most people have on their financial “to-do” lists. Unfortunately, it is not always an easily achievable goal. Property ownership has always been a costly endeavour, and in recent years the age of first-time homeowners has been steadily increasing as younger professionals reach find their financial footing later than in previous years, making the One option that helps property buyers side-step the financial burden is co-ownership. But how beneficial is this path really? Co-ownership is when one or more party jointly own a single property. In essence, the owners share legal ownership without having to divide the property into physical portions for their exclusive use. It is thus commonly referred to as co-ownership in undivided shares. It is possible to agree that owners acquire the property in different shares; for instance, one person owns 70% and the other 30% of the property. The different shares can then also be recorded and registered in the title deeds by the Deeds Office. On paper, it’s a great idea. For starters, the burden of bond repayments and maintenance costs are lessened. However, there can be problems and although not every friendship or relationship is destined to disintegrate, there does often come a time when one of the parties involved wants to sell up and move on to bigger and better things. If ownership is given to one or more purchasers, without stipulating in what shares they acquire the property, it is legally presumed that they acquired the property in equal shares. The risks, the benefits and the obligations that flow from the property are shared in proportion to each person’s share of ownership in the property. For instance, one of the co-owners fails to contribute his share of the finances as initially agreed, resulting in creditors such as the bank or Body Corporate taking action to recover the shortfall. If two people own property together in undivided shares, it is advisable to enter into an agreement that will regulate their rights and obligations if they should decide to go their own separate ways. The practical difficulties that flow from the rights and duties of co-ownership are captured by the expression communio est mater rixarum, or “co-ownership is the mother of disputes”. It is therefore important that certain remedies be made available for when the agreement the co-owners entered into does not help them solve arising disputes. The co-ownership agreement should address the following issues: In what proportion will the property be shared? Who has the sole right to occupy the property? Who will contribute what initial payments to acquire the property? Who will contribute what amounts to the ongoing future costs and finances? How will the profits or losses be split, should the property or a share be sold? The sale of one party’s share must be restricted or regulated. The right to draw funds out of the access bond must be regulated. A breakdown of the relationship between the parties. What happens in the occurrence of death or incapacity of one of the parties? Dispute resolution options to be relied on before issuing summons. The guidelines for the termination of the agreement. Co-ownership can be a wonderful way in which to realise your dreams of homeownership even when your financial situation does not yet fully allow it. But it is vital that you obtain the necessary guidance and advice when entering into such a relationship to ensure a long-term, mutually beneficial experience. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Proposed legislative change: VAT and the temporary letting of property
The VAT Act makes provision for the supply of residential fixed property by a VAT vendor (being a property developer) to be subject to VAT at the standard rate of 15%. The property developer has to charge VAT on the sale of the residential fixed property. Depending on market conditions, residential fixed property developers are at times unable to dispose of newly built residential fixed properties for extended periods of time. In order to maintain expenses incurred in developing such fixed property, such as bank loan repayments, property developers often enter into short term temporary leases for such fixed property until a buyer can be found. While the VAT Act recognises the sale of residential fixed property by a property developer as a taxable supply, the leasing of residential fixed property is an exempt supply that would generally result in the VAT incurred being denied. The VAT Act requires a change in use adjustment when property developers temporary lease residential fixed property. Property developers are entitled to deduct input tax on the VAT costs incurred to build residential fixed property (dwellings) for sale. However, where the property developer is unable to sell the residential fixed property and enters into a lease agreement until a buyer is found, the property developer is required to make an output tax adjustment based on the open market value of the residential fixed property when the residential fixed property is leased for the first time. In 2010, an announcement was made in Chapter 4 of the 2010 Budget Review (“VAT and residential property developers”, page 79) to investigate and determine an equitable value and rate of claw-back for property developers as the current treatment is disproportionate to the temporary rental income. As a result, changes were made in the VAT Act by temporarily inserting section 18B, from 10 January 2012 to 1 January 2018. Concerns have been raised with regard to the inequitable value attributed to this change in use adjustment. Further, it has come to Government’s attention that there seems to be confusion amongst taxpayers relating to whether the change in use adjustment results in the subsequent supply of the residential fixed property being permanently or temporarily removed from the VAT net. As such, some taxpayers interpret the legislation to imply that output tax is still payable when the residential fixed property is subsequently sold while others interpret it otherwise. In order to address these concerns, it is proposed that changes be made in the VAT Act by inserting a new section that will deal with the deemed change in use adjustment when the residential fixed property is leased for the first time, including whether the deemed change in use adjustment results in the residential fixed property exiting the VAT net or not, and the subsequent deemed supply where the residential fixed property is sold. This approach is considered equitable and will serve as an anti-avoidance measure. National Treasury is of the view that the changes will not prejudice property developers whose intention with regard to the residential fixed property was always that the residential fixed property is trading stock, intended for the making of taxable supplies in the course of such property developer’s enterprise activities. We do not believe that the proposal, set to be effective from 1 April 2022, will be promulgated in the current form and further amendments are expected. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
The rising popularity of sectional title ownership
Sectional titles have become a staple in the real estate industry over the past decades. And with all the benefits that come with it, it makes sense. Heightened security, lower insurance costs on buildings and outdoor areas, shared maintenance costs with other owners, becoming part of a community, no cleaning the pool on Saturday mornings — it sounds like any homeowner’s dream. And it’s not just hearsay, the numbers speak volumes. In 2005, sectional title sales only took up about 13% of overall property sales. But by 2010, sectional titles sales started picking up, soon accounting for 22% of all sales and reaching a whopping 28% of overall sales by 2016. Even with the slight dip sales took due to the pandemic, sales were still able to reach a high of 29% of the market at the end of 2020. When looking at sectional title sales in each province, Gauteng has always been the frontrunner, accounting for more than half of all sales nationally, while the Western Cape and KwaZulu-Natal take 2nd and 3rd place (with 18% and 14% of sales, respectively). The market is drastically shifting, though, with the Eastern Cape’s sales increasing by 28,3% over the past four years. Growth in the other provinces has been substantially lower, with the Western Cape even showing a decline of 4.9%. When it comes to revenue, however, the Western Cape is still in the lead, dominating the R3 million+ property market. The Western Cape market saw an exceptional rise in sectional title sales between 2016 and 2018 with an influx of sales born out of the semigration trend. In the following years the sales have metered out and plateaued again (however, still leading in the upper market spectrum). Beyond the benefit of having a cost-effective home that allows you to lock-up-and-go knowing that your property will be safe, one of the primary factors that contribute to the growing popularity of sectional title sales has been the lower price inflation rate. Lightstone statistics show that sectional title properties have had a lower inflation rate compared to freehold properties since 2010. The margin between the inflation rates had slowly been closing over the years, with the rates aligning at the end of 2019. Though, in 2020, the gap widened once more. That gap may be narrowing once again, though, as the inflation rate of a 3-bedroom property in either category reached the 4%+ mark in the first quarter of 2021. This is largely due to the momentum that sectional title sales have gained while freehold properties have been losing traction. It doesn’t look as if sectional title ownership is going to drop in popularity any time soon. Rather, all signs indicate that it has become a mainstay in the property market going forward. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)