Subdivision and Consolidation of Land
Do you have a big piece of land that is becoming expensive and labour-intensive to maintain? Or perhaps you have two adjacent properties you’d like to combine into a larger erf? Subdividing or consolidating could be the ideal solution for you. Subdivision of your property has many benefits for you as the owner. Subdividing can increase your property’s value by creating smaller plots for sale. Alternatively, you could develop the smaller plots and sell or rent them to generate an income. Subdivision may assist with your estate planning, as each of your children could benefit from inheriting a smaller plot of their own. If your land is zoned for commercial use, you could subdivide and build commercial spaces, thereby also gaining an extra income. If you notice a rapid population growth in your area, subdivision of your land could assist with urban densification. Your land could be large enough to be divided into smaller pieces of land to be developed. This is known as township development. While there are benefits to subdivision, there are also drawbacks. The process is a lengthy and expensive exercise. Professional experts, such as a land surveyor, town planner, and an attorney who specialises in conveyancing, are appointed to assist the property owner. Approval from the municipality must be obtained for the subdivision. The municipality may impose conditions regarding the infrastructure and services associated with the property, which the applicant must address in order to obtain the municipality’s certificate of approval. Subdivision applications need to comply with the Spatial Planning and Land Use Management Act 16 of 2013 as well, whether for conventional or agricultural property. Once the application for subdivision is approved, the owner may apply, in terms of Section 43(1) of the Deeds Registries Act 47 of 1937, to the local Deeds Office for separate title deeds for each portion, which is known as a Certificate of Registered Title Deed. You are then in a position to sell a portion, obtain a mortgage loan for each portion or lease each portion. Consolidation is the joining of two or more pieces of land. To consolidate pieces of land, they must share a common boundary line and must be owned by the same owners. The pieces of land must be in the same registration division and the same province. There are benefits to consolidating pieces of land, namely, where the owner of the pieces of land wishes to construct a house over both pieces of the land, allows for the efficient planning and construction of roads, irrigation, and other infrastructure, which a larger portion of land may be accomplish, it can help protect farmland from urban sprawl and other development pressures. The consolidation of pieces of land must comply with the Spatial Planning and Land Use Management Act 16 of 2013. Similar to subdivision, land consolidation is a costly process that also requires the expertise of professional bodies. The owner may apply to the local Deeds Office for a Certificate of Consolidated Title Deed for the newly formed property, which replaces the Title Deeds held for the two or more pieces of land that have been consolidated. Section 40 of the Deeds Registries Act 47 of 1937, with specific reference to section 40(1)(a) to (f), sets out the requirements for the consolidation of properties. 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.
Is bond switching the key to lower mortgage payments?
In recent years, bond switching has become an increasingly popular choice among homeowners looking to reduce their monthly payments, access better loan terms, or take advantage of improved interest rates. But is switching your home loan the right move for you? Before making any decisions, it’s important to understand what bond switching entails, the potential benefits and risks, and the process involved. What is Bond Switching? Bond switching refers to transferring your existing home loan from one lender to another to take advantage of better terms, such as lower interest rates or more flexible repayment conditions. Unlike applying for a new bond to buy a home, bond switching is purely about refinancing your current loan. This process can help you secure a better deal without the need to sell your property. Why Would You Consider Switching Your Bond? There are several reasons why homeowners in South Africa may consider switching their bond: Lower Interest Rates: If interest rates have dropped since you took out your bond, switching to a new lender with more competitive rates can help you save a significant amount of money over the life of the loan. Better Loan Terms: You may find a lender offering better repayment terms that suit your current financial situation. This could include flexible payment options, the ability to adjust your payment period, or lower monthly instalments. Improved Credit Profile: If your credit score has improved since you first took out your bond, you might qualify for better terms with a new bank, helping you lower your interest rate or shorten your repayment period. Consolidate Debt: For homeowners with multiple debts, switching your bond can provide the opportunity to consolidate your debt, simplifying your finances and potentially reducing your monthly payments. Access to Equity: If you’ve built up equity in your home over time, you may be able to access this money when refinancing your bond, which could be used for renovations, investments, or other financial goals. The Process of Bond Switching The bond switching process typically involves two key stages: bond cancellation and new bond registration. Bond Cancellation: Your current home loan must be settled with your existing lender. This involves cancelling the bond with the deeds office, which requires the assistance of a conveyancer or property attorney. New Bond Registration: Once the original bond is cancelled, a new mortgage is registered in favour of the new lender. This is also done at the deeds office, and legal fees will apply for this process. Both of these steps require a conveyancer to manage the legal aspects, ensuring that everything is processed smoothly and in compliance with the law. Costs Involved in Bond Switching While bond switching can be financially beneficial in the long run, it’s important to be aware of the costs involved in the process. These may include: Bond Cancellation Fees: Your current bank may charge a fee to cancel the bond. New Bond Registration Fees: The new lender will require a bond to be registered in their name, which incurs fees. Conveyancing Fees: A property attorney will need to handle the legal aspects of both the bond cancellation and the new bond registration. Early Termination Penalties: If you switch before your initial bond term ends, you may face penalties for early termination, depending on the terms of your original agreement. Is Bond Switching Right for You? Bond switching can be a great way to save money and improve your financial position, but assessing your personal situation is essential before making any decisions. Consider your long-term financial goals, the costs involved, and whether the benefits outweigh the risks. If you’re considering switching your bond, be sure to speak with a financial advisor or property law expert who can help you navigate the process and ensure you make the best decision for your circumstances. 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.
Renting vs Buying: The Pros and Cons
In a lowering interest environment, tenants are reconsidering their priorities. Driven by reduced interest rates and more lenient loan criteria, tenants are starting to have their sights firmly set on owning a home. While many—particularly the ‘millennial generation’—chose to travel and live more ‘freely’ in the past, priorities have since changed. The pressing question right now is: ‘Should I continue renting, or should I buy?’ The simple answer is to do your homework, and to consider the pros and cons. However, before you even begin to look around, make sure that you request a free home loan prequalification. These can be easily accessed online via bond originators such as Ooba Home Loans. This gives you an idea of what you can afford, and what your credit rating is. A credit rating of 600-plus is what you need to be considered for a home loan. A prequalification is therefore a good place to start in determining whether you would qualify for a bond. In addition, start scoping out the property market at least three to six months prior to putting in an Offer to Purchase. Once you know what you can afford, chat to agents in your area, and register on websites such as Property24 and Private Property to receive alerts for property listings. This gives you a better idea of what is available in your price range, what properties go for in areas of your choice, and what the demand is like. Doing your research will empower you when it comes to making a deal. It gives you bargaining power through knowledge of the area and the market in general. To Rent, or Not to Rent? Renting pros: Flexibility: If you’re undecided as to where you want to invest, or whether your income will be secure in the longer term, then renting is best for you. No ownership costs: Homeowners are sometimes hit with costs that tenants don’t have to factor in. These relate to maintenance, levies, rates and taxes, and home insurance. Less responsibility: Renting a small lock-up-and-go is appealing for those who want as little maintenance as possible. In addition, if one were to be retrenched or needed to move quickly, it would be simpler. Renting cons: No return on investment: The obvious downfall is that you are paying for an asset that you don’t own, and will not make returns on. Bound by rules: Rental agreements are rigid, and a tenant is bound by these. Failure to comply can result in fines and further legal action (in a worst-case scenario). To Buy, or Not to Buy Firstly, if you are considering buying a home, a question often asked is: ‘Is it better to finance your home over 20 or 30 years?’ On a 20-year bond, you pay lower interest rates with higher monthly repayments; whereas on a 30-year bond, you pay higher interest rates with a lower monthly repayment. A 30-year bond is better suited to an investor who has a tenant to cover their monthly repayments, and there is a higher chance of achieving a positive cashflow. However, paying off your bond sooner is better. Add an extra R500 per month (at minimum), and you will see the difference that it makes. Chat to your bond originator to help you do the maths. Home Ownership Pros: Ownership and equity: Owning an asset, regardless of the economic climate, is a positive. If you look after your home and focus on paying it off quickly, you can still make a return rather than paying off someone else’s bond. Freedom to personalise: You now get to decorate, renovate, and call the shots for the most part. Rental income as an additional revenue stream: If you’re looking to rent out your place, a tenant can cover your bond and (hopefully) your bills. Although the income is taxable, you can also claim a tax deduction on costs incurred in producing such income (such as bond interest, rates, maintenance, rent collection costs, etc.) Benefits your credit score and finances: Your mortgage account is a great place to put your savings—the interest saved is higher than what you can earn on cash deposits, is effectively tax-free, yet is also low enough should you wish to borrow against it in future. In addition, making repayments on your home each month (on time) improves your credit record. Home Ownership Cons: Hidden costs: Be sure to download a home loan calculator prior to putting in an Offer to Purchase. This way, you know what the transfer fees are as well as the attorney fees. Remember that there are transfer duties (for properties over R1.1 million) as well as attorney fees for the transfer and bond registration that you will need to factor in. Less mobility: Spur-of-the-moment decisions to backpack the world or relocate for work will require more thinking and admin time. Returns not guaranteed: No returns are set in stone. You might over-capitalise, or interest rates could increase, and you may never make your money back, let alone turn a profit. That is why it’s important to do your research prior to purchase—and to pay off your home as quickly as possible. WRITTEN BY GRANT SMEE Grant Smee is a property investor. 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.
Why a Home Loan Prequalification Matters
So you’ve been looking to buy your dream home, and you’ve seen something for sale that grabs your fancy. Now imagine yourself walking through the front door carrying a suitcase filled with cash. You’ll certainly get the buyer’s attention, won’t you? Of course, not many people are in the fortunate position of being able to pay cash for a property—but being prequalified for your home loan is the next best thing. What does it actually mean to be prequalified for a home loan, and does this process put you under any legal or financial obligations? The short answer is no. Unlike a promissory note—also known as a loan agreement—a prequalification doesn’t require any financial commitment on your part. However, this does not mean that you should set an unrealistic expectation of what your prequalification amount might be. Simply put, you wouldn’t walk into a store to purchase an item that you unequivocally could not afford. So why would you shop outside of your price range when buying a home? A prequalification is a clear indicator of what you can afford, and what your credit rating is. These two indicators are essential when purchasing a home. The bank will only approve you for an amount that you can afford to repay each month, and a bad credit rating (under 600) will not be accepted. According to recent statistics, 8.4% of home loan applications are declined due to poor credit scores, and 7.7% due to affordability. Do your homework Buying a home is an emotional and lengthy process. In addition to behind-the-scenes research and viewings, one needs to consider the process of putting in an Offer to Purchase, which—if accepted—is legally binding. This paperwork takes time, and requires input from the buyer, the seller, and the agent. Without a prequalification, there is a chance that the offer will be rejected—and that all the work would be done in vain. Also, keep in mind that if you have been rejected by the banks, you will need to wait three months before reapplying for a home loan. What a prequalification entails A prequalification can be easily undertaken online, and acts as an estimate of what you can afford as it is based on your monthly earnings, expenses, and any debts that you may have. The certificate is valid for 90 days. While this step won’t 100% guarantee that you will be approved by the banks, a prequalification is an easy way to determine the price category that you can shop around in. Conversely, if a prequalification is denied, it helps prospective homebuyers to be more realistic and to end the process before sinking any money or time into an application. Does a prequalification give you an edge? It certainly does, and the reasons as follows: Shopping with confidence: Knowing your credit score gives you the opportunity to address any issues before putting in an offer. A prequalification also gives you a pretty accurate picture of what you can actually afford. Standing out from the crowd: Sellers are more likely to accept an offer from someone who has a prequalification. This acts as proof that you can afford what you’re buying, and the likelihood that you will be approved by the banks. In a bidding war, a prequalification will help you to stand out. Avoiding disappointment: A prequalification protects you from putting in an offer on a property that you can’t afford, and will ten to one be turned down for. WRITTEN BY RHYS DYER Rhys Dyer is a real estate specialist. 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.
Are You Obligated to Pay Arrear Levies When Purchasing a Sectional Title Unit? Part 2
Recently, the High Court and the Supreme Court of Appeal (SCA) were required to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 in relation to a sale in execution in the case of the Body Corporate of Marsh Rose v Arno Steinmuller and others. The issue in the appeal is firstly, the statuses of the parties, consequently, whether the body corporate’s reliance on the statutory embargo is susceptible to challenge and secondly, the High Court’s order, which irrespective of the interpretation given to the embargo provision, cannot stand. In 2018, Mr Steinmuller acquired a unit in a sectional title scheme at a sale in execution. The transfer was authorised by a court order that Standard Bank obtained against the registered owner of the unit. It’s important to note that, as per the Act, a body corporate is not considered an owner of property; it merely manages the common property on behalf of the individual owners. Simply put, the body corporate is not a party to the sale agreement. The said sale was contingent upon the published conditions of sale, which described that the Purchaser was liable for certain payments including: “All levies due to a Body Corporate in terms of the Sectional Titles Act, 1986…” If a property is sold in execution, a contract is established between the sheriff, who executes the court order, and the purchaser, whose bid is approved. The execution creditor (Standard Bank) is thus also not a party to the agreement. The purchaser bears the responsibility to pay the purchase price and any additional amounts due to abide by the terms of the agreement. This is a contractual obligation. The sheriff may enforce the terms of the sale agreement or seek cancellation of the transaction in accordance with rule 46(11) if a buyer fails to meet a condition of the sale. In this case, the terms of the sale stipulated that the sheriff would be entitled to recover levies that were due to the body corporate as part of the purchaser’s payment. This was the context in which the appeal needed to be resolved. Mr. Steinmuller would only have an enforceable right if he had fulfilled his contractual duties under the terms of the agreement of sale. His right operates against the sheriff and not the body corporate. If Mr. Steinmuller’s contractual obligations are limited by the terms of sale, he might be able to demand that the sheriff grant transfer upon payment of that money. He cannot, however, insist that the body corporate accept his offered payment and, as a result, offer a clearance certificate that would allow the transfer to take place. The body corporate’s statutory power to refuse to issue a clearance certificate until all outstanding payments have been made cannot be limited by Mr Steinmuller’s contractual right to transfer. A conveyancer’s certificate attesting to the fact that all money owed to the body corporate has been paid is required before the sheriff can grant transfer. Until the terms of the embargo are fulfilled, the body corporate would legally be able to refuse to deliver the certificate. The result is that Mr. Steinmuller is not a party to any disagreement that may exist conceptually about what is owed to the body corporate, he has no legal interest. As a result, the SCA ordered that the High Court’s ruling be set aside and replaced with an order dismissing the application with costs, including the costs of two legal counsels where so employed. The court concluded that, with regards to the decision in Barnard NO v Regspersoon van Aminie en ’n ander, legal fees paid to recover money owed to the body corporate was protected by s15B(3)(a) of the Act. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the 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.
Tenant ‘Red Flags’ and How to Avoid Them
The wrong tenant can have a lasting negative effect. The residential property industry continues its upward trajectory, and investors are getting in on the action. However, with the rise of investors choosing to take advantage of low prices and invest in ‘buy-to-let’ properties comes an excess supply of rental properties in areas with high supply and low demand. Residential rental vacancies in Gauteng are currently sitting at a high rate of 11.9%, while the Western Cape is sitting at a slightly lower 11.4% vacancy rate, according to TPN’s 2021 Q4 data. Although landlords may be getting desperate, industry experts advise you to think twice before signing on the first tenant who comes your way. Placing a tenant in your vacant property might help curb your losses in the short term, but putting the wrong tenant in can have a lasting negative effect. Contrary to popular belief, the law protects both the landlord and the tenant’s rights—and both parties are strongly urged to do their due diligence prior to signing a lease agreement. In terms of obligations, those of the tenant include the requirement to pay rent promptly, to take care of the property, and to return the property in the same condition in which it was received. Landlords, on the other hand, are required to provide the tenant with access to a safe home in good working order. They are also required to maintain the exterior of the building and to protect the tenant’s deposit. While some properties are enjoying an influx of rental applications, others are desperately seeking tenants—both of which are at risk. Receiving a rental application is a big relief for a landlord, so much so that they often overlook several red flags. Unfortunately, the price of avoiding the warning signs and securing a problem tenant carries a high price for landlords. This is because evicting tenants is a long and costly process in South Africa, requiring landlords to serve tenants with a ‘tenant eviction notice’ before they are entitled to a court hearing. Even if the court process rules in the landlord’s favour, only a court-appointed sheriff is allowed to remove the tenant’s belongings – and this process can take weeks, if not months. The obvious red flags While some of these red flags can be avoided by using a reputable letting agent (and agency), some of these obvious ones are often overlooked. A poor credit score A credit score refers to one’s ability to pay back their debt on time. The COVID-19 pandemic has further exacerbated high levels of debt in South Africa, and this will be a prevalent issue for years to come. Therefore, prior to signing on a tenant, a thorough credit check should be run. A credit score of 610-plus is generally acceptable. Affordability The general rule of thumb is that one’s monthly rental should not exceed 30% of their monthly salary. Accordingly, an assessment of a prospective tenant’s affordability will give a landlord a clearer idea of their monthly income and expenditure. Agents and landlords should ensure that the tenant has enough income left over to pay their rent, electricity, and water (where required). References A tenant will require a reference from previous landlords to determine their behaviour as a tenant. A reference tells the landlord who the tenant is, and whether they are reliable. If the prospective tenant has no prior rental history, they will need to either arrange a co-signature on their lease agreement or offer to put another credible reference forward, such as their employer. The not-so-obvious red flags This list of potential red flags includes those that do not readily come to mind, which results in many landlords overlooking them in the tenant screening process: Employment history Employment is hard to come by. However, some prospective tenants’ short employment histories can tell a different story. Job hoppers or people who run into trouble in the workplace can sometimes display this kind of behaviour in their home lives as well. Criminal history Performing a criminal background check may sound extreme, but this is a standard part of the hiring process in many industries—and rentals should be no different. Some companies such as TPN provide a SAPS criminal background check to landlords as part of their Credit Check offering to ensure that your tenant is safe, honest, and reliable. General behaviour Quite often there are red flags from the very first engagement with a tenant. In some cases, they are hard to reach, or can be extremely difficult and demanding for no apparent reason. This is another reason why it’s important to use a rental agent whose judgement you can trust. Ensuring a good tenant-landlord relationship Here is some advice that will help landlords to ensure a smooth relationship with their tenant: Always communicate In cases where the tenant already occupies the property, be sure to communicate—and put everything in writing. Remain calm and rational should something go wrong and seek advice from estate agents and, when necessary, your attorney. Don’t be fooled by fast cash Don’t fall into the trap of accepting a large sum of cash upfront instead of regular rental payments. Just because they have the money now, doesn’t mean they’ll have it in four months’ time when the next payment is due. Don’t rush In cases where the tenant is dragging their feet about signing the rental agreement, don’t lose hope yet. Try your best to clearly communicate, perform all the necessary checks, answer any questions they may have, and spend a few days mulling over your decision before jumping into a lease agreement. Trust your gut Much like in any relationship, if something feels off when you’re engaging with a prospective tenant, trust your instincts. Paperwork can be forged, but your intuition is rarely wrong. WRITTEN BY GRANT SMEE Grant Smee is a property entrepreneur and a managing director. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles
Complex Living: Be Aware of the Hidden Costs
When considering the purchase of a unit within a complex, it’s crucial to look beyond the surface-level expenses such as the advertised levies. Without thorough research, potential buyers may find themselves facing unexpected financial burdens. The structure of sectional title schemes In sectional title schemes, you own your unit but share ownership of the property’s common areas with other unit owners. This collective ownership, known as the body corporate, is responsible for the maintenance of exteriors, gardens, security, and the overall upkeep of the complex. These responsibilities are funded through monthly levies, which can be more complex than they first appear. Monthly administrative levy The administrative levy is the primary fee in sectional title schemes, varying based on your unit’s size, which means that larger units contribute more. This levy covers not just the utilities—such as electricity and water, billed collectively to the scheme and then apportioned to units based on usage—but also the maintenance of common areas, operational expenses, and building insurance. Reserve funds and special levies Since 2016, a law has mandated that a portion of levies be allocated to reserve funds for long-term maintenance, guided by a 10-year capital expenditure plan. This fund, typically no less than 15% of the administrative levy, is designed to prevent the sudden imposition of special levies for major maintenance projects. Despite the reserve fund’s intent to cover large expenses, unforeseen costs like significant repairs or utility billing errors can necessitate special levies. These are decided by the trustees and can represent a significant additional cost. CSOS levy The Community Scheme Ombud Service (CSOS) levy, another cost in sectional title schemes, is the lower of R40 or 2% of an owner’s levy when it exceeds R500, with no levy charged for amounts under R500. This is collected quarterly by managing agents. The risk of non-paying owners Non-paying owners in sectional title schemes pose a significant risk, which can strain the scheme’s finances. Trustees can address late levies by seeking an adjudication order from the Community Schemes Ombud Service (CSOS) or taking legal action through an attorney to enforce payments. However, these steps can take time, and in the interim, compliant owners may face unexpected special levies as the scheme manages these financial shortfalls, directly impacting your budget and financial planning. Make an informed decision Before committing to a purchase, prospective buyers should request the latest levy statement to fully understand monthly charges, particularly since utilities are included in sectional titles. The actual cost, including utilities, can far exceed initial quotes. It’s also vital to review the most recent AGM pack, current budget, and financial statements to understand the financial health of the scheme and avoid investing in a poorly managed, financially unstable scheme. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the 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.
Who Owns Your Home—the Bank, or You?
With the vast majority of homes being financed through the country’s biggest banks, the popular online debate around who owns a mortgaged home in South Africa continues. While some would argue that the bank owns your home, the truth lies in two salient points: The authority that you elect to take on as soon as the bond is transferred into your name; The all-important title deed. As a homeowner, the important decisions related to your home are dictated by you—not the bank. You have the power to decide whether you wish to renovate, extend, decorate, paint, update the landscaping, lease out the property, or even sell. You are also responsible for the maintenance, repairs and general upkeep of the property. If you were to sell, the first proceeds of the property sale would go towards paying off what you still owe on your home loan. Anything over and above would be profits for you to keep. Further to this, a crucial piece of evidence around homeownership hinges on the title deed. The name on the title deed of a home is the legally recognised owner, and this can be verified through the Deeds Office. If you were to access the title deed of the property, you would clearly see your name on it as the official owner. However, the bank’s name will also be listed on the title deed, not as the property owner, but as the holder of your mortgage bond. A homeowner will only receive their title deed once the home loan is paid off. The title deed will be kept by the lender or bank until the said home loan is paid off. With the majority of South Africa’s homes (69% according to Lightstone’s latest statistics) still being financed through the banks, the term ‘homeowner’ supports the argument. When you purchase a home—bonded or not—you are automatically deemed a homeowner. What is a title deed? A title deed is an important legal document used to determine the ownership of a property (or piece of land). When you purchase a property, a conveyancing attorney is appointed to transfer the title deed into your name, and you will need to cover the relevant fees related to the transfer. The transfer process usually takes about three months following the approval of the home loan. Once the bond registration and transfer process has completed, the title document will then be registered at the Deeds Office, which can take up to three weeks to be finalised. The title deed includes important information such as the homebuyers’ personal details, a description of the property, the property purchase price, the date when the property was last transferred, any factors that could restrict the sale of the property in future—for example, a home loan—and any restrictions that apply to the purchase of the property. It also includes an official Deeds Registry Office seal to indicate that the deed has been recorded in the name of the owner, and the date. In the case of joint property ownership, which is becoming increasingly commonplace, the title deed will also set out how much of the property is owned by each person. If I default on my repayments, is the house still mine? The common question of ‘who owns your home’ shines a spotlight on some South Africans’ misconceptions of homeownership. This misconception generally stems from the repossession process in which a bank can repossess and sell your asset, should you default on your home loan repayments. However, while this is factually true, the repossession process creates a legal and administrative headache for the banks and is therefore viewed as a last resort—meaning that they will often be willing to work with the homeowner to find a way to help them repay their debt over time. Homeowners in financial distress have access to the following avenues to avoid repossession: Rescheduling or restructuring your debt; Renegotiating your home loan term; Requesting a payment holiday; Rearranging your repayment agreement; Selling your home; Accessing credit insurance. Unbeknown to many, the local area municipality also has the right to foreclose and sell your home should you repeatedly default on rates and taxes, while the Body Corporate (in the case of sectional title properties) can opt to have the property attached and sold should you default on your levies over an extended period. While the recourse for repossession is lengthy and will follow due processes, it is important to note that the banks aren’t the only ones with the power to do so. Protect yourself by paying all fees—on time, every time—and prioritising your financial wellness as a homeowner. WRITTEN BY GAVIN LOMBERG Gavin Lomberg is a home financing specialist. 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.
Understanding homeowners associations (HOAs)
If you are considering buying a property in a housing development, it’s essential to understand what a Homeowners Association (HOA) is and how it operates. HOAs are legal entities responsible for managing and regulating housing development schemes. Although homeowners own their individual properties, the HOA maintains and oversees communal infrastructure, such as roads, security systems, and other shared amenities. When purchasing a property in a housing development, the title deed will typically include a condition that mandates automatic membership in the HOA for the new owner. Additionally, the transfer of ownership cannot occur without the HOA’s approval. During the registration process, you will receive access to the HOA’s Constitution and Conduct Rules. Here is an example of the language you might find in the title deed: “SUBJECT to the following condition contained in Deed of Transfer Number Txxxx/20xxx, imposed by Stormers Country Estate (Pty) Ltd, Registration Number XXXX/XXXXX/XX, as developers, and as stipulated in the Stormers Country Estate Homeowners Association Constitution, established under Section 29 of the Land Use Planning Ordinance No 15 of 1985, and approved by the City of Cape Town under Section 42 of the same ordinance, regarding the subdivision of Erf XXXX Cape Town: ‘That the within property may not be sold or transferred without the prior written consent of the Stormers Country Estate Homeowners Association, of which the Transferee shall become a member. Such consent shall not be unreasonably withheld.’” HOAs can be established through two legal structures: as a non-profit company or a common law association. Non-Profit Company: An HOA set up as a non-profit company operates under a Memorandum of Incorporation and is governed by the Company Act. Common Law Association: An HOA established under common law operates according to its Constitution, guided by Common Law. In both structures, the HOA’s governing documents serve as binding contracts for homeowners/members within the development. These financial and governance documents must be submitted annually to the Community Schemes Ombud Services (CSOS) for record-keeping and oversight. The Constitution and Core Duties of HOAs The Constitution of a common law association outlines the operational obligations and governance structure of the HOA. It allows members or executive members to create regulations and rules that bind all members. The Constitution details the scope of the HOA’s activities and the powers of its executives, which are typically defined during general meetings. Core Duties: Maintenance and Repairs: One of the HOA’s primary responsibilities is the upkeep and repair of communal spaces and shared amenities. This includes tasks such as landscaping, pool maintenance, parking lot upkeep, and the management of recreational facilities. By collecting membership fees, the HOA ensures these areas are well-maintained, enhancing the living experience for all residents. Enforcement of Rules and Regulations: HOAs establish and enforce community guidelines, which may cover architectural standards, noise restrictions, pet policies, and parking regulations. These rules are essential for maintaining the community’s appearance and ensuring a high quality of life for all members. Financial Management: The HOA board oversees budgeting and financial management, ensuring funds are allocated transparently and effectively. While HOAs do not have inherent powers to impose penalties on members, their governance documents may grant them the authority to pursue legal action for collecting overdue levies, fines, or other fees owed by members. A well-managed HOA, with effective oversight by elected executives, can foster a strong sense of community and potentially enhance the market value of individual properties. Before purchasing a property within a housing development scheme, reviewing the applicable governance documents and familiarising yourself with the rules and regulations you will be expected to follow is crucial. Reference: Home Owners’ Survival Manual by Graham Paddocks While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the 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. Powered by SucceedGroup
Are you obligated to pay arrear levies when purchasing a sectional title unit? Part 1
Recently, the High Court and the Supreme Court of Appeal (SCA) was required to interpret Section 15B(3)(a)(i)(aa) of the Sectional Titles Act 95 of 1986 in relation to a sale in execution in the case of the Body Corporate of Marsh Rose v Arno Steinmuller and others. The Sectional Titles Act 95 of 1986 stipulates in Section 15B(3)(a)(i)(aa) that the registrar of deeds shall not register a transfer of a unit or an undivided share therein unless he is presented with a conveyancer’s certificate attesting to the fact that, as of the date of registration, the body corporate has certified that all monies owed to the body corporate by the transferor in respect of the said unit have been paid, or that payment has been made to the satisfaction of the body corporate. In this matter, Mr Steinmuller bought a property in a sectional title scheme sold by the sheriff in a sale in execution. The previous owner of the property owed money to the body corporate of Marsh Rose in respect of arrear levies. The body corporate obtained a judgment against the previous owner for the said amount. When Mr Steinmuller purchased the property at the sale in execution, the judgment debt was still due. The body corporate sent Mr Steinmuller an invoice stating that an amount was owed to them for the property purchased (the clearance figures), which had to be paid before the body corporate would provide the clearance certificate. According to the terms of the sale in execution, Mr Steinmuller was required to pay any levies that were owed to the homeowners’ association or body corporate. He insisted on receiving the ledgers containing the sums claimed for levies for the specific period, as well as the resolutions passed by the body corporate’s trustees regarding the interest charged thereon. The body corporate declined to give the requested information. It stated that Mr Steinmuller was not yet the owner and therefore not entitled to receive it. Due to this, he filed an application with the High Court of Gauteng, requesting an order directing the body corporate to sign all documents and take the required actions to enable the transfer of the property into his name, against payment of R150 000 into a trust account as security for the levies that the body corporate was owed. The High Court granted his application with an increase of the sum to be paid into a trust account as security. The judgment debt that the body corporate acquired against the property’s former owner was not included in the sum granted. According to the court’s ruling, a judgment debt is not an obligation owing to the property and thus should not be a burden on the new purchaser. The body corporate appealed to the SCA with the National Association of Managing Agents (NPC) as co-appellant. The SCA ruling will be discussed in part 2 hereof. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the 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. Powered by SucceedGroup