Understanding estate massing in community of property marriages
In community of property marriages, spouses often combine their estates, or mass their estates, to ensure that certain assets go to specific beneficiaries. This is done while still ensuring the surviving spouse’s welfare and protecting assets from being misused after the first spouse passes away. This article will explain the necessary conditions for this estate combining process. Section 37 of the Administration of Estates Act (“the Act”) defines massing as when two or more people combine their entire joint estate or a specific part of it. They do this by leaving the combined estate to chosen heirs in a mutual will. The surviving spouse benefits from this joint estate, provided they accept it. However, there’s a presumption against massing which can be challenged. To avoid confusion, the will must clearly state the intention to combine estates and override this presumption. Requirements The following requirements must be met for massing to occur: There must be two or more persons as parties to the mutual will. The parties must make a mutual will (a mutual will is a joint will in which two or more testators have mutually benefitted one another in the same document). The parties must mass the whole or part of their separate estate assets into a consolidated unit, and this unit must be disposed of in the mutual will. The mutual will must grant the survivor a limited right in respect of any property which has been massed. The disposition of the massed estate must take place sometime after the death of the first dying. The survivor must adiate (accept) on the death of the first dying. Limited interest for the survivor The mutual will must create a limited interest in favour of the survivor over the assets disposed of by the deceased and survivor in their will. The limited interest can be created by granting inter alia a usufruct, fiduciary interest, or income beneficiary under a trust. Should the mutual will not contain the limited interest, massing will not occur. Adiation and repudiation The survivor is under no obligation to accept the terms of the mutual will. The survivor may elect to either adiate or repudiate the mutual will. Adiation means that the survivor has accepted the terms of the will as willing to abide by those terms. Repudiation means that the survivor has rejected the terms of the mutual will, and the effect is that the survivor will retain their own assets but will not be entitled to any benefit from the deceased estate. However, repudiation does not restrict the survivor’s right to claim for maintenance from the deceased’s estate. Should the survivor exercise their right to either adiate or repudiate, the survivor cannot at a later stage revoke the election. A will needs to be drawn up clearly and concisely to reflect the true intention of a testator. 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.
Five residential property trends no one saw coming
Experts have already predicted the top property trends of 2024, ranging from the impact of looming interest rate cuts to co-buying, solar power financing, sectional title demand and the resurgence of first-time homebuyers. However, several emerging (and sometimes overlooked) trends are set to come into play, creating notable shifts in the landscape. The top five trends for 2024 have been touched on time and time again, but ooba Home Loans’ data has also pinpointed overlooked shifts in trends that will have an impact on the market throughout this year. These are as follows: Average house prices begin to rise albeit slowly Following an all-time high in 2020 and 2021 when interest rates dropped to a historical low of 7% and nominal property price growth increased to 9.37%, the average house price in South Africa has begun to flat line over the past two years, coinciding with interest rate increases since the pandemic. However, the market has started to turn. According to the latest data from ooba Home Loans, January 2024 saw record-high purchase prices recorded across both first and second time homebuying segments. The overall purchase price paid rose to an all-time high of R1.49 million in January 2024 (+7.6% above year-earlier levels), while the average price paid by first-time buyers rose by a more modest +4.1% year-on-year, reaching a new high of R1.18 million. Perhaps the most confident statistic to come out of this would have to be the Western Cape, where the average purchase price breached a whopping R2 million for the first time. This is followed by the Eastern Cape, recording an average purchase price of R1.57 million (up by 13% year-on-year). Further strengthening this argument, the recorded activity amongst estate agencies has strengthened, albeit modestly. While the total number of sales last year was lower than the sales recorded in 2022, sales activity in the final quarter of 2023 was stronger (+0.9%) than in the previous quarter and just 0.4% below year-earlier levels (the smallest annual decline in two and a half years). Demand for holiday homes soars in the Eastern Cape The Eastern Cape overtook the Western Cape in 2020 as the region with the highest volume of applications for holiday home purchases a title that the province has retained in the years since. This can be attributed to the recent trend of an increased number of foreign buyers purchasing second homes in the Western Cape, particularly along the Atlantic Seaboard and Garden Route which in turn has resulted in higher prices and reduced stock in these areas, leading locals with some extra money and a desire for a coastal home to look elsewhere. ooba Home Loans data indicates that these buyers have turned to the Eastern Cape, which offers a similar climate and natural beauty at a more affordable price point. Holiday home applications in the region now stand at 1.7%, the highest level in recent years. Free State emerges as a haven for first-time buyers The Free State is the only region in South Africa where the average purchase price paid by first time homebuyers is below R1 million, according to ooba Home Loans’ latest data. In response, young buyers are taking advantage of the deals on offer in this region, with first-time homebuyers accounting for 62.9% of all home loan applications in the Free State in January 2024 the highest percentage of any region. First-time buyers are extremely price conscious, and this is evidenced by the comparatively lower volume of first-time homebuyer applications in the Western Cape (35.8%) where the average purchase price is the highest in the country, both for first-time (R1.58 million) and repeat (R2.01 million) buyers. Limpopo: A strong contender While the Western Cape continues to record the average highest first-time buyer price in the country, significant year-on-year increases in the average first-time homebuyer purchase price in Limpopo and Mpumalanga saw these two regions register the second- and third-highest average purchase prices in January 2024. Limpopo’s property price performance is so strong that in the last two months, the average first-time homebuyer purchase price in Limpopo exceeded the average purchase price overall in the region, at R1.39 million and R1.36 million respectively. Buy-to-let properties continue to climb Growing demand for investment properties continues despite the subdued investor sentiment that has plagued South Africa in recent years. One of the key drivers of the boom is undoubtedly the Western Cape, and it is predicted that in 2024 in excess of 30% of ooba Home Loan’s applications from this region will be from investors. However, there are signs of increased investment demand elsewhere such as the Eastern Cape and Free State. This could be attributed to a young, growing population taking advantage of low house prices, and student housing presenting a good investment opportunity. With all of this considered, we expect 2024 to be a positive and exciting year for the residential property sector. WRITTEN BY RHYS DYER Rhys Dyer is a property specialist. 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.
Is there a need for sectional ownership?
Professor C.G. van der Merwe, the doyen of sectional titles in South Africa, sets out the reasons for introducing sectional ownership into a legal system. He states that these reasons or aims are similar worldwide and mean legislative recognition of the social, economic, and physiological needs of society. The need and demand for suitable residential accommodation have escalated over the past six decades with rapid urbanisation, with a need for security and affordability driving the escalation. Prior to the introduction of the Sectional Titles Act 66 of 1971, South African laws did not recognise sectional ownership in a building or parts of a building apart from the ownership of the land on which the building was erected. This was due to the Roman-Dutch law maxim superficies solo credit. G.J. Pienaar explains that this means the owner of a piece of land is also the owner of everything that is permanently attached to the land. The legislation aim was therefore to alleviate the scarcity of housing by creating the possibility of someone buying an apartment or flat instead of renting an apartment or flat in a building. Another reason for sectional ownership legislation is the optimal use of available land which is, especially in densely populated areas, inordinately expensive and in short supply. This is illustrated by a sectional title scheme in the Strand namely Metropole Plaza. The building was constructed on an erf 1971m² in extent. These could possibly have been subdivided into four plots for the erection of four houses. The building comprises 75 apartments or flats. This means the density is higher and the cost of the land for each apartment is therefore less than conventional housing. The rider hereto is that ownership is brought within the reach of lower-income groups. Homeownership has a social status that satisfies the psychological need therefore as opposed to renting an apartment or owning shares in a share-block scheme. There is no doubt that Van der Merwe is correct when he says that sectional ownership also realises a sociological goal in that certain people prefer apartment living on account of the closer social life, additional amenities, and security it affords. He is furthermore of the opinion that the Act was designed to achieve not only sociological but also political stability. One only has to look at the extent of informal housing settlements and the constant protesting by the residents as to service delivery as opposed to structured housing and ownership thereof. Ownership of an apartment, as opposed to rental, satisfies the need to provide a hedge against inflation. This is self-explanatory. Paying rental only assists in increasing the capital growth for the owner. Although sectional ownership was initially intended for residential purposes in high-rise buildings or duplex flats, semi-detached houses, and cluster housing, its flexibility allows it to be used for commercial or industrial purposes, or a mixture of all three. Sectional title offices, mini-factories, or warehouses are becoming more common. The provisions of the Act do not distinguish between the various sectional title schemes and apply to all schemes alike i.e. residential, commercial, and industrial. The 1971 Act was repealed in its entirety by the Sectional Title Act 95 of 1986 which was proclaimed as coming into operation on 1 June 1988. The new Act according to Van der Merwe, while leaving the basic structure and main principles of sectional ownership intact, streamlined registration procedures and introduced several new mechanisms to cope with the demand of modern sectional ownership. One notable introduction was the concept of exclusive use areas, which can be designated on the sectional title plan by the developer or later by the body corporate. These areas can be ceded to owners, thereby creating a real right that is capable of being mortgaged. 2011 marked the next development in sectional title legislation with the creation of distinct pieces of legislation: The Sectional Title Schemes Management Act 8 of 2011 which deleted the management provisions from the Sectional Title Act of 1986 and left the technical registration and survey provisions in the latter Act. The Community Schemes Ombud Services Act 9 of 2011 (CSOS) established the ombud service as a new dispute settlement mechanism for community schemes that also aims to monitor and take custody of the community schemes’ governance documentation. The updated legislation emphasises the growth and the necessity of governance of the burgeoning sectional ownership industry. Reference list: CG van der Merwe Sectional Title Share Blocks and Time Sharing Vol 1 Pg 1 – 14 CG van der Merwe Pg 1 – 14 Promulgated on 30 June 1971 and proclaimed into operation on 30 March 1973 CG van der Merwe Pg 1 – 11 GJ Pienaar Sectional Title and other fragmented property schemes 2010 Pg 22 CG van der Merwe Pg 1 – 15 CG van der Merwe Pg 1 – 15 CG van der Merwe Pg 1 – 15 CG van der Merwe Pg 1 – 16 CG van der Merwe Pg 1 – 16 CG van der Merwe Pg 1 – 16 CG van der Merwe Pg 1 – 16 CG van der Merwe Pg 1 – 18 CG van der Merwe Pg 1 – 13 Sectional Titles Act 95 of 186 Section 27 (1) CG van der Merwe Pg 1 – 13 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.
Pension funds and emigration
Investing in an offshore retirement fund is one way of growing your wealth in a stable economy over the longer term, or even gaining residency in a foreign country. However, for South Africans, this scenario presents as many challenges as it does opportunities, and should only be considered after consulting with a financial advisor and tax expert. When you invest offshore directly, whether in a retirement fund or another funding vehicle, the tax aspects can be tricky to understand, and several factors must be considered. If you fall foul of the domicile-specific tax rules, you could end up losing a large portion of your investment when you retire and start to withdraw funds, or during the inheritance process after your passing and if it’s not set up properly, your investment could also expose you to more taxation. With regards to pension funds in South Africa, there are three basic scenarios, and two of them preclude moving one’s contributions into an offshore component to enable financial emigration or offshore retirement. Scenario 1 Membership in an employer-sponsored retirement fund. In some circumstances, an employer will create a free-standing fund and then appoint a board of trustees to make fund-related decisions. The board of trustees makes a variety of decisions, including hiring a fund administrator, an investment and retirement fund consultant, and an asset manager. These types of funds have fund-specific rules, and anyone who joins the fund (via employment) must follow them, including the limited portfolios in which you can invest. The underlying investment portfolios might have some offshore exposure that offers some form of financial security. Scenario 2 Membership in a personal umbrella retirement fund. In the second scenario, where contributions are made in someone’s personal capacity into an umbrella fund, it is typically the fund’s trustees that determine where the contributions are invested. Scenario 3 Retirement saving in an offshore fund. The third scenario is where someone saves for retirement in an offshore fund—and this is an appealing option when it comes to retirement savings, as it allows for actual variety. Normally, as a South African-domiciled investor, even if your portfolio is properly diversified, you are most likely committed to rand-based funds which come with an inherent risk. However, when investing in an offshore retirement fund, the annuity could sit completely offshore and might be a vehicle that enables financial emigration. Generally, although not always, international retirement plans enable financial freedom by giving members the freedom to buy and sell assets within the structure, without triggering related capital gains tax. Another way to fund an international retirement plan is to use funds that are already taxed and cleared, and are being held in an offshore bank account or direct investment vehicle. Such plans have tax benefits for members, but these are by no means the sole advantage. Portfolio diversification is a key benefit, as is the security that comes with investing in jurisdictions that are both politically and economically stable, as well as being well-regulated and having measures in place to combat fraud and money laundering. However, many factors should be taken into consideration before taking the plunge including fund options and structures, domicile-specific interest rates and taxes, rules around withdrawals and estate planning, and overall risk. The closer you are to retirement, the lower the risk you should be exposing yourself and your investments to. Ultimately the biggest decision to make is the selection of a qualified, experienced advisor to guide you through the technicalities and tax implications when investing offshore. WRITTEN BY SIPHAMANDLA BUTHELEZI Siphamandla Buthelezi is a financial specialist. 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.