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.
Property advice in an election year
Buy now, sell later. This year, almost half of the world’s inhabitants will head to the polls to elect their new governments, including eight of the world’s 10 most populous countries. In South Africa, we can expect our own election to put the property market into a temporary holding pattern, dragging on the subtle buyer’s market we have been experiencing. However, while owners are advised to wait until the end of the year to consider selling their property, buyers are cautioned against getting caught up in election fears and missing out on real estate bargains. The impact of sentiment All market behaviours are driven by sentiment. South Africans face uncertainty around the outcome of the election and the likelihood that, for the first time in its history, the country will be led by a coalition government at the national level. This creates negative sentiment that is also being fuelled by the heightened and increasingly populist rhetoric of competing political parties—and persistent factors, like the delay in interest rate cuts and a declining rand, only add to the doubt. While we were all hoping for a downturn in the rate cycle at SARB’s May or July meeting, it is now doubtful that anything will happen before September. The MPC remains hawkish and seems unlikely to move interest rates downwards before the US Federal Reserve has lowered its policy rate. That’s expected well after the election, and these compounded concerns are pushing people to take a wait-and-see approach—including in the buying and selling of property. A first for South Africa All countries with a proportional representation electoral system eventually face a coalition government scenario. The likelihood of a national governing coalition is therefore a sign that our political system is maturing. This will be South Africa’s first coalition government at a national level, and the norms associated with such a structure have never been firmly established among the political class or the voting population. While national coalitions are a sign of progress and maturity, it is likely to lead to a lot of short- to medium-term noise that is likely to have a continuing and unpredictable impact on sentiment in all markets, including the property market. Countries like Belgium with older proportional representation systems have developed the advanced bureaucracy necessary to almost run the country on autopilot, even without a government. South Africa, however, still needs to find its footing in any coalition pacts and develop the necessary protocols among participants intent on promoting their own interests. This means that things will probably be noisy and messy for some time after the election, as parties attempt to nail down the terms of their respective alliances. At the moment, the nearest we have to some agreement is the Multiparty Charter whose only purpose is to counter a national coalition between the ANC and EFF. What to expect from property Currently, it’s still a buyer’s market for property, and it definitely won’t turn into a seller’s market until after the election and a rate cut. Until then, we can expect that property price growth will remain low. However, once the election outcome is known, and provided we have avoided worst-case scenarios, and the rate cut is at hand, we can expect pent-up demand for property to spill into the market and significantly increase demand. In addition, weak economic growth means that sellers who can afford to wait should indeed wait until spring or summer to see if they can fetch a good price for their property relative to the market. Winter is historically not a great time for selling homes anyway. Despite the general mood brought on by politics and the interest rate cycle, the market in the Western Cape remains buoyant—and there are signs of buyers returning in earnest to areas like southern Gauteng and areas east of Pretoria. The smart money of property investors also remains in the market, signalling that opportunities exist. Along with low property price growth, this means that astute buyers can still pick up bargains while others hesitate. If you want to buy, buy now—and don’t be put off by sentiment-driven hesitance that currently prevails in the market election sentiment. In the South African property market, due to structural factors, what goes down must eventually come up. WRITTEN BY RENIER KRIEK Renier Kriek 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. Powered by SucceedGroup
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.
Dream Holiday or Nightmare! An overview of the Property Time-Sharing Control Act and the Vacational Ownership / Time-Share industry.
Part 1 This article broadly looks at property time-share and the legislation regulating it. The problems and complaints by consumers trapped in the empty and misleading promises advertised to them by the time-share industry are also addressed. In part one, the article gives a broad outline of what the Property Time-Sharing Control Act entails and specific definitions that describe the various elements of the industry. Part two will look at the National Consumer Commission Report of 2018 and its recommendations as well as the legal consequences of contracting into a time-share agreement and the recourse available to consumers who, because of misrepresentation want to cancel their agreements. Property time-sharing became very popular in South Africa in the 1980s and later, the use of the point-system as an alternative to Time-Sharing schemes which offered fixed accommodation for a specific time during the year. The point-system gave members more flexibility in their choice of holiday accommodation. The need to create legislation to regulate the industry and protect the consumer arose and the legislature enacted the Property Time-Sharing Control Act in 1983. (“the Act”) [1] The purpose of this Act was to regulate the alienation of time-sharing interest within a property time-sharing scheme by regulating the contents of advertising and formalities pertaining to the contracts. What constitutes a “time-sharing interest”? It is the right (incorporeal) to/ or interest in the exclusive use or occupation of accommodation during a determined or determinable period(s) during any year.[2] The occupancy rights must be recurrent (yearly) to qualify as a time-sharing interest. The definition of “accommodation” in the Act is wide enough to cover apartments, free-standing houses, caravans, tents and even private nature reserves, therefore buildings and land need not be of a permanent structure to qualify as accommodation. This definition does however not cover boats and yachts. The definition of a “time-sharing scheme” in the Act refers to “any scheme or arrangement or undertaking in terms of which time-sharing interests are offered for alienation or are alienated and the use of such interest is regulated or controlled”. Alienation for the purpose of the Act refers to the selling of the Time-Shares. The legal basis of the scheme can be in terms of sectional titles, share blocks, memberships or clubs. A scheme involving the alienation of time-shares and the management of their use, therefore, qualifies as a property time-share scheme irrespective of their size and legal basis. The main objective of the Act was to maximise consumer protection in terms of disclosure requirements as to certain information when advertising a time-share interest. Newer legislation in terms of the National Credit Act (“NCA”)[3] and the Consumer Protection Act (“CPA”)[4] has direct implications for the application of the Act and the time-share industry as a whole. In 2018 the National Consumer Commission (“NCC) investigated the vacational ownership and time-industry after various consumer complaints were submitted to the Consumer Protection Tribunal. [5] The majority of the complaints received and raised during the enquiry related to the inability to cancel these so-called “life-long” contracts with clubs, the forfeiture of points on a cancellation or transfer/reselling of the interest, unavailability of accommodation, misrepresentation of what is actually being sold during the sales presentations and escalating membership fees which was advertised as non-escalating fees to potential buyers. The NCC made substantial recommendations on the matter, including the need for newer legislation that regulates the time-share industry in South Africa, in order to bring consumer protection in the timeshare/vacation ownership industry in South Africa on par with the rest of the world. [1] Property Time-Sharing Control Act 75 of 1983 [2] supra [3] National Credit Act 34 of 2005 [4] Consumer Protection Act 68 of 2008 [5] report on the inquiry commissioned in terms of section 88(3) of the consumer protection act, act 68 of 2008 into the Vacational ownership/ timeshare industry. https://www.thencc.gov.za/content/report-inquiry-commissioned-terms-section-883-consumer-protection-act-act-68-2008-vacational. 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.
Rate hikes: Are buyers over-reacting?
Historically, interest rate hikes have had a dampening effect on the South African residential property market, with homeowners reassessing their affordability in anticipation of higher monthly loan repayments. The resultant reduction in home loan applications immediately following an interest rate hike is a reaction from buyers who are hesitant to make a long-term commitment until rates stabilise and they can plan accordingly. However, increased buyer education and understanding the purpose of why interest rate hikes are implemented can be a helpful tool in alleviating the affordability concerns of would-be buyers. Why interest rate hikes are implemented The purpose of interest rate hikes is to curb inflation i.e., the higher price of goods and services. The South African Reserve Bank (SARB) chooses to implement a rate hike when inflation levels are high locally, as is the case at present, to ‘cool off’ the economy. To put this into context, the SARB has an inflation target range of between 3 and 6% and we are currently well above that with inflation at 7.6% in South Africa. High inflation increases the cost of living for consumers, and interest rate hikes are intended to slow down demand and spending, to reduce inflation again. Unfortunately, higher inflation also slows growth in the economy, and getting the balance correct is essential. When interest rates are high, the cost of repaying loans becomes more expensive, so consumers are less likely to take on additional debt. This reduces the demand for goods and services, which causes prices to fall. It is this reluctance to take on additional debt that has a knock-on effect in the financed economy, most significantly the home loan market. Looking at the ‘bigger picture’ Some would-be-buyers and first-time homebuyers have adopted a ‘wait and see’ approach out of concerns around affordability and repayments at a higher rate. This is a natural reaction but it’s important to put these rate hikes in context. The homebuying frenzy of 2020 and 2021 was the result of record-low interest rates introduced by the SARB to stimulate the economy during a global pandemic. The latest round of interest rate increases has merely returned the prime rate to pre-COVID levels, and should not be cause for panic. The revised interest rate is still well below the long-term average experienced over the past 25-years. Consumers should therefore look beyond the current interest rate cycle, and take note of the several ‘big picture’ factors that indicate that now is still a good time to invest in property. These include the banks’ competitiveness and approving loans on attractive terms, the fact that we are moving into a buyer’s market, and that property prices remain affordable in many parts of the country. Buying vs renting: Which is better in the long-term? It is however acknowledged that some consumers may take these factors into account, and still opt to rent rather than buy. Buying a home is a decades-long commitment and in these turbulent times, some may prefer the flexibility offered by renting or are in a life stage where renting simply makes more sense than buying. However, to the question of whether it is cheaper to rent rather than buy a home following an interest rate hike, the answer is ‘not necessarily’. Landlords will often increase their rental charge following a significant hike as they look to cover their own increased costs. This reinforces the importance of thinking long-term and opting to pay off your own bond rather than someone else’s. Renting may be more affordable monthly but over the course of a decade (or more), you may walk away having spent a similar amount on rent than you would have on loan re-payments, and with nothing to show for it. In contrast, the value of a property asset will only appreciate over time. The importance of shopping around for a home loan The most effective tool that prospective homebuyers have at their disposal to reduce the negative impact of interest rate hikes is by budgeting accordingly and cutting out unnecessary expenditure to ensure that they can afford to cover the additional monthly repayment costs. The second is using a bond originator before embarking on their homebuying journey. The banks are still actively competing for home loan business, and by using a bond originator to apply to multiple banks on your behalf, you are far more likely to get a better deal than if you’d applied to just one. A bond originator is also able to help negotiate a better rate and terms on your behalf when necessary. Our research shows that homebuyers who obtain multiple quotes will repay their home loan at an interest rate that is on average 1.03% (103 basis points) lower than those who obtained a single quote. This helps to reduce the affordability challenges brought on by rate hikes. 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)
Can trustees sell trust property to their own company?
The Supreme Court of Appeal (SCA) recently deliberated on whether a court sanction is necessary to validate the sale of shares owned by a trust to a company controlled indirectly by two of the trustees of the trust. This matter was addressed in the case of Kuttel vs Master of the High Court and Others. Peter Clark Kuttel, also known as “Padda” passed away on the 20th of May in 2019. He was the husband of Joy and the father of Peter, Francois, and Adrian. During March in 1981, a trust was created with Padda Kuttel being the donor. The couple named the trust the Padjoy Trust, who, along with a chartered accountant, served as the initial trustees of the trust. The trust was established to acquire and hold assets for the upkeep of Padda and Joy, who were to benefit from it following Padda’s retirement from being a successful businessman. Upon the couple’s demise, the trust’s assets would be distributed equally among Peter, Francois, and Adrian. The trustees of the trust were Padda Kuttel, until his death, Joy Kuttel, until her death a week before the application was heard, Francois, Adrian and two independent trustees, John Levin and Barry Adams, attorneys of considerable experience and expertise. Peter was the only son who was not a trustee. Writing the majority judgment, Judge Clive Plasket said, “no doubt, the enmity between Peter and his father, in particular, as well as with the family more generally, probably also contributed to him being the only beneficiary who is not a trustee.” In 2012, the trustees decided to restructure the trust’s assets as well as those of another related trust. The process was concluded in mid-2013. The sale of the trust’s shares in Southern Ropes (Pty) Ltd to Grace Investments Thirty-Two (Pty) Ltd, a company indirectly controlled by Francois and Adrian, was one part of a bigger process of consolidation of the trust’s assets. Peter applied to the Western Cape Division of the High Court for an order setting aside the sale by the trust of its shares in Southern Ropes. His application was dismissed with costs, as was his application to the high court for leave to appeal to a higher court. On petition to the Supreme Court of Appeal, it was ordered that Peter’s application for leave to appeal be referred for oral argument. Three issues arose to determine whether Peter had reasonable prospects of success: (a) whether the approval of the court was required for the validity of the sale of the shares; (b) whether the transaction was open and bona fide; and (c) whether Peter had been treated unfairly by not being allowed to bid for the shares. The Supreme Court of Appeal found that: (a) Peter did not require court approval for the sale of the shares because the rule he relied on applied only to transactions where a trustee purchases the immovable property from a trust; (b) considering Francois and Adrian’s disclosure of their interest, the fair determination of the purchase price, and the terms of the trust deed, the transaction was conducted openly and bona fide; and (c) to the extent that Peter was treated differently from his brothers, that differentiation was justified in the context of the powers of the trustees, the purpose of the transaction, the effect of the transaction and the fact that Peter as a beneficiary had no right to bid for the shares. The Supreme Court of Appeal dismissed Peter’s application for leave to appeal with costs. Reference List: Kuttel v Master of the High Court and Others (819/2021) [2022] ZASCA 156 WRITTEN BY JAN VAN ZYL 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)
Compliance certificates required when selling a property
There are five compliance certificates that the Seller is required to obtain at his/her own cost before the transfer of the property takes place. The following are the necessary certificates: Electrical Compliance Certificate The Electrical Installation Regulations under Section 43 of the Occupational Health and Safety Act, sets out the requirements for obtaining a valid electrical compliance certificate. Regulation 7 (1) states that “every user or lessor of an electrical installation, as the case may be, shall have a valid certificate of compliance for that installation”. Regulation 9(1) states “no person other than a registered person may issue a certificate of compliance”. The registered person may only issue the certificate of compliance after completing an inspection and a test. The test report must accompany the certificate of compliance. The certificate of compliance may not be older than 2 years. Hence, when the Seller is selling and has a certificate older than 2 years in his/her possession, he/she is obliged to obtain a new certificate to hand over to the Purchaser. In terms of Regulation 15, it is an offence should a person fail to comply. The penalty is a fine or imprisonment should the person be found guilty of the contravention. Electrical Fence Certificate As of the 1st of October 2012, the issuance of an Electrical Fence Compliance Certificate came into effect. This certificate is to be issued in terms of Regulation 12(4) of the Electrical Machinery Regulations, under the OHS ACT of 1993. All property owners that have an electrical fence must, in terms of this Regulation, obtain a compliance certificate when selling their property and only a registered Electric Fence System Installer can issue a property owner with the certificate of compliance. The Electrical Fence certificate is valid for up to 2 years from the date of issue. It must be noted that should the Seller have an electric fence, the Electrical Compliance Certificate discussed above will not include the electrical fence, as it will have its own certificate of compliance. Water Compliance Certificate In 2011, the City of Cape Town introduced a local water by-law. In terms of Section 14 of the Water By-Law, “the Seller must, before transfer of a property, submit a certificate of compliance from an accredited plumber certifying that: The water installation conforms to the National Building Regulations and this By-Law There are no defects The water meter registers There is no discharge of stormwater into the sewer system” A qualified, registered plumber may issue the certificate of compliance and this certificate must be issued every time the property is transferred. The water installation certificate of compliance is not a plumbing certificate as it is limited to the By-Law and is not as comprehensive as a plumbing certificate. Beetle-Free Certificate This compliance certificate is not a requirement by law but has become a practice in the sale of property, particularly in coastal provinces, where the wood borer beetle is commonly found. Between the 1940s and 1960s, there was an infestation of the beetle, which compromised the structural integrity of buildings and homes, thus the beetle compliance certificate was introduced to protect the Purchaser. The financial institutions that grant the home loan bond insist on this compliance certificate to protect their asset. The beetle certificate is valid for up to three months from the date of issue. It should be noted that a beetle compliance certificate is not a pest control certificate. Gas Certificate As of the 1st of October 2009, Regulation 17(3) of the Pressure Equipment under the Occupational Health and Safety Act, came into effect. This Regulation states that “an authorised person or an approved inspection authority shall issue Certificate of Conformity after completion of a gas installation, modification, alteration or change of user”. The Certificate of Conformity will be issued by the South African Qualification and Certification Committee Gas, and a registered gas practitioner for the installation, repair, modification, or maintenance. The nominated Conveyancer attending to the transfer of the property will ensure that the Seller obtains the above-mentioned certificates. The Purchaser should request the original certificates for their records and must scrutinise these certificates to ensure that an accredited service provider provided the certificates and that the certificates are valid according to the Regulations. The Purchaser should further ensure that the Seller has complied with all the required certificates by inspecting the property to ensure that for example, should there be a gas appliance, a gas certificate is obtained. These certificates afford comfort to the Purchaser that the property he/she is purchasing conforms to Building Standard norms and regulations set. Reference List: Occupational Health and Safety Act 1993, Electrical Installation Regulations Occupational Health and Safety Act 1993, Electrical Machinery Regulations City of Cape Town, Water By-Law, 2010, Promulgated 18 February 2011 Occupational Health and Safety Act 1993, Pressure Equipment Regulations Written by MEERUSHINI GOVENDER 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)
How to obtain a home loan: Things to consider before you apply
With most of the major interest rate hikes now out of the way, 2023 is set to provide a more stable environment for financially savvy, would-be home-buyers to enter the property market. While the economic outlook is set to be less turbulent than during the previous year, it’s still vitally important to take charge of your spending and prioritise assets that will pay off in the long run. While some South Africans are opting to rent, ooba’s statistics indicate that there is still strong demand for home-buying among both first- and second-time buyers due to the competitive lending environment. Where to start Before starting the process of shopping around and applying for a home loan, potential homebuyers should have a clear understanding of what they can realistically afford. A good rule of thumb is that a monthly home loan repayment should not exceed 30% of your monthly salary. There are free tools online such as ooba’s Bond Indicator, that allow you to check your credit score, see what you can afford, and provides you with a prequalification certificate which is valid for 90 days. More than just a piece of paper, a pre-qualification certificate plays a vital role in boosting your chances of receiving preferential interest rates, as it ‘primes your financial profile’ prior to applying. Once this step is completed, it’s time to talk about budgeting and saving. It’s important that you budget accordingly, preparing yourself for the added costs associated with homeownership, including: the cost of registering your bond; transferring the property into your name; and paying the transfer duty on your new home (applicable to properties over R1 million). Also, while banks continue to approve 100% home loans, buyer demand for zero-deposit loans has dropped by 7% from Q4 ’21 to 57% of applications in Q4 ’22. We, therefore, recommend that buyers factor in a deposit of around 10%. For first-time South African homebuyers earning a single or joint gross monthly household income of between R3 501 and R22 000, there is also a good chance that you can qualify for the Finance Linked Individual Subsidy Programme (FLISP). Don’t forget the paperwork In addition to the general criteria that to apply for a home loan, homebuyers must be 18 years or older, permanently employed for at least six consecutive months, or self-employed for the past two years, the following five documents are required to complete your application and give you the greatest chance of successful approval: Proof of income: The majority of the banks will ask for your last three pay slips from your employer (or accountant if you are self-employed) as proof of regular income. Bank statements: Banks will request the last three months’ bank statements from your personal account. These will be used to verify your monthly income and expenditure, which includes monthly debt repayments and living expenses. If you are married in community of property or are applying for a joint home loan, your partner’s bank statements will also be required. A copy of your ID: Make sure that you have a copy of your South African identity document scanned and ready to go. Personal assets: The loaning banks will request a bird’s eye view of your personal assets and liabilities through your bank statement. The purchase agreement:The banks will need to see a copy of the purchase agreement on the home that you are wishing to purchase. Remember that a bank valuator is sent around to the property to make sure that it is valued correctly. A lot of these take place electronically these days; however, it remains a key requirement for final bond approval. Help is at hand The process of applying for a home loan especially the first time around can be daunting. A free home loan comparison service offers you tools to check your credit score and determine your affordability, helps you get your documents in order, and submits your home loan application to multiple banks so that you receive the best possible interest rate. WRITTEN BY Rhys Dyer Rhys Dyer is the chief executive officer of ooba Home Loans. 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)
How much home can you get for your money
Analysing the affordability of SA’s residential property market. South Africans continue to tighten their belts as the pressure of rising interest rates, inflation, and other varying economic factors put household income under strain. This puts the affordability of national residential property under the spotlight. However, while (in nominal terms) national house price inflation remains positive (+1.9% in September 2022), the national average purchase price is down among first-time homebuyers. The price of properties purchased by this demographic registered a third consecutive decline in September 2022 (down 3.5%), reflecting first-time homebuyers’ sensitivity to interest rate increases. Breakdown of the most and least affordable regions in SA Regional house price inflation for the year to 30 September 2022 is broken down as follows: Gauteng South and East: +7.3% Eastern Cape: +5.7% Gauteng North and West: +1.8% KwaZulu Natal: +1.4% Western Cape: -2.1% Interestingly, properties in Gauteng’s South and East Rand continue to register robust growth in prices, despite this region’s average house purchase price being the lowest at R1 183 032. The Western Cape, on the other hand, has the highest average purchase price in the country, but it is the only major region to report house price deflation. After peaking in March 2022 at R2.05 million, the average purchase price of properties purchased in the Western Cape eased to R1.66 million in September with purchase prices over the year to 30 September 2022 registering a decline of 2.1% compared to the same period last year. In Gauteng North and West, the average purchase price of properties purchased this year (to 30 September 2022) is pinned at R1 551 273, while in the Eastern Cape and KwaZulu Natal it sits at R1 490 898 and R1 337 229 respectively. Analysing the price-to-income ratio in SA Examining property prices in isolation reveals only one side of the story, because the price of a home is not the same as the relative affordability of a home. One way to measure the affordability of homes is to look at the price-to-income ratio. Here, the nominal house price is divided by the nominal disposable income per head. This means that in a particular region, homes may be more expensive, but incomes may also be higher thus making the homes there more affordable. In the Western Cape, for instance, the average purchase price of properties purchased from January to September 2022, compared to the same period in 2019, shows an increase of 6.1%. The average gross income of applicants has, however, increased by 17.5% over the same time period suggesting that on average, the homes purchased this year are almost 10% more affordable than those purchased during the same period in 2019. Affordability has also improved marginally in the Gauteng North and West region, as the average income of home loan applicants increases at a slightly faster pace than that of the average purchase price. However, the same cannot be said for homes in the Eastern Cape (where house prices of homes purchased increased by 18.5% during the year to 30 September 2022, compared to the same period in 2019) and, particularly, in Gauteng South and East Rand (tracking a house price increase of 21.7%). In both these regions, this rise in house prices purchased has outpaced growth in average gross incomes, resulting in a relative deterioration in affordability in these housing markets. Affordability amongst first-time homebuyers per region Gauteng is home to the largest percentage (20.3%) of potential first-time homebuyers (mostly young adults aged between 30 and 39 years), while the Eastern Cape has the lowest. Across the regions, but most notably in the coastal provinces, the average first-time homebuyer’s purchase price has decreased. Interestingly, Gauteng South and East where first-time buyers make up more than half of applications received registered the lowest average purchase price year to date. This makes it the second most affordable region for homebuyers, despite a slight deterioration in affordability. Conclusion and outlook Overall, despite varying levels of affordability across the country, the market remains stable and there are still deals to be had for those who want to capitalise on a generous lending environment and shop around using a home loan comparison service. As interest rates begin to stabilise in 2023, we expect to see activity in the market improve, especially among first-time homebuyers. WRITTEN BY RHYS DYER Rhys Dyer is the chief executive officer of ooba Group. 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)