The face of home ownership in South Africa is continuing to change as more black middle class homeowners move into the increasingly affluent suburbs; while the previously disadvantaged now comprise more than 50% of home buyers. Although strict loan requirements remain a hurdle to be overcome for those wishing to get onto the first rung of the property ladder, structures such as Rent2buy in affiliation with My Budget Fitness, are paving the way to a more prosperous future. Rent2buy was developed to assist frustrated sellers and buyers who fail to conclude a purchase and sale transaction of a property as a result of the decline of the home loan application of the buyer. Through the rent2buy concept, the buyer gets the opportunity to secure the property, with a right (an option) to buy the property say 6- 12 or 24 months later, once the buyer had the opportunity to improve his affordability and or credit profile,depending the reason why the bank declined the bond in the first place. During the rent2buy period a higher rent than the normal market related rent is usually paid – close to a bond repayment instalment – and the additional rent is credited towards a deposit for the buyer – with the result that once the buyer is ready to exercise the option to buy – he now has a much improved credit profile and affordability, plus a deposit, which all will improve his chances to secure a home loan. The buyer is assisted during the rent2buy period with a mentor and education how to go about to buy and eventually own his own home, plus budgeting tools developed exclusively by My Budget Fitness for this purpose. The education and mentorship on budgeting and home ownership continues after transfer of ownership is taken, to ensure sustainable home ownership for the new home owner.

Never a Better Time to Buy

Buying is almost always preferable to renting. After all, paying rent for a property which will never be owned, instead of paying a comparable amount for a house is logically more beneficial. Property is not getting cheaper and it is very much a buyers’ market right now with mortgage rates at their lowest for the last 4 decades. Investing in property now means that in 15 years’ time, most homeowners will have made a significant dent in reducing the capital borrowed to fund the purchase. While borrowing is reduced, the home is also increasing in value resulting in a win/win situation.

While it may be slightly cheaper to rent rather than buy at the present time, the economic models on which statistics are based assume that renters could invest their money elsewhere. However, given that the rate of saving has declined since the 1970’s (when it stood at around 6.6%) to negative levels in today’s market, this is unlikely. Over a 10-15 year period, renters will spend slightly less than they would on mortgage payments, but would have nothing to show for it. At the current time, investing in buying a home means that buyers could end up at the end of a comparable period with an asset worth double the original purchase price you paid for it.

Home Owners Insurance

As part of the agreement for the mortgage bond granted to you by the bank, homeowners will be required to take out a comprehensive insurance policy equal to the value of your home, usually with the bank itself. This is so that the cost of repairing or rebuilding the house is covered in the event of catastrophe. Home owners insurance will not only cover the structure of the building, but also eventualities such as: burst geysers and any consequential damage; fixtures such as bathrooms and fitted kitchens; as well as often being extended to cover garages, greenhouses and other external features such as walls and fences. The usual criteria is that if the fixture cannot be easily removed and ported to a new home, it will be covered. The insurance also allows for temporary re-housing in the event of the home being uninhabitable for the duration of any repair work which may prove necessary.

There are a number of advantages to taking out home owners insurance with the bank that grants the bond. Usually the bank’s premiums are very competitive and often less expensive than buying elsewhere. It is easy to apply for the insurance because it is linked to the bond, with no administrative or review fees payable, neither will there be any penalties for previous claims or for submitting a claim in the event of a problem.

Black Property Ownership

With total home ownership in South Africa standing at 65%, much higher than, for instance, Germany and on a par with the United States where ownership stands at 66%, ever increasing numbers of people are choosing to take the step up to owning their own home. Between 1994 and 2011, the government has built over 3 million houses, predominantly for black households, and banks have been focused on paving the way for black ownership with most banks giving 100% loans to households with earnings of under R16,000 a month.

Black ownership of South Africa’s primary residential market stacks up to 41.7%, emphasising the radical change which has taken place in the market place since the mid 1990’s.

Johannesburg has seen the largest shift in home buying, which is favoured for its proximity to Soweto. Suburbs such as Ormonde, Meredale, Kibler Park and Ridgeway have all seen significant rises in black middleclass home ownership. The greater Randburg area has seen a rise in middle income black buyers working in both financial and corporate sectors. More than 50% of buyers are now from the black middle class demographic.

Home ownership is a failsafe method to assist aspirant first time home owners living especially in townships to escape the poverty trap. This is the message of MEC for Human Settlements, Minister Bongikhaya Madikizela at the launch of the Consumer Housing Education Programme in Khayelitsha last week.

Minister Madikizela referred to the difficult task of local government providing sufficient housing and related services particularly in the Western Cape area. The Western Cape currently has inflows of thousands of people migrating into the Western Cape region every month, which puts massive strain on local services. The WC Government main focus is to first provide the basic needs like water, sewerage and sanitation services before they can embark on a proper housing scheme for those living in shacks.

Minister Madikizela lauded the initiative by private companies and stakeholders in the property industry to get together stand together and develop a Consumer Property Education programme for first time buyers as well as sharing their skills and their resources. Currently, no housing education exists for first time buyers or new homeowners in the GAP market.

The attendees of the Khayelitsha forum were all hand-selected stakeholders from Local Government, City of Cape Town and other Municipalities, ward counsellors, NGO organizations, community leaders, banking and finance institutions, property developers, mortgage originators, and representatives in the corporate and private sector.

• Meyer de Waal CEO of My Budget Fitness introduced the Consumer Property Education programme for first time home buyers in “Six Easy Steps” to the stakeholders.
• Solly Molefe, Owner of Setsmol followed up and shared his experience on the importance of Consumer Property Education, flowing from his 11 years as educator and mentor in the Consumer Education environment.
• Gary Power, Marketing Manager of Power Developments focused on the importance of a property developer’s role of creating a community of new home owners. Through Consumer Property Education it can empower new homeowners with information to take action and for them to understand their rights and duties as a prospective property owner. Research done by Power Developments also highlighted the need for consumer education for homeowners.
• Daphne King, from the City of Cape Town welcomed the collaboration of role players in the private sector to work with Government and Local Authorities in partnership to expand the concept of consumer education for First Time Home Owners. The City of Cape Town has already implemented consumer education for the BNG type housing, but realised no such product exists for the Gap Housing segment of the market.

The contributors to the ‘Consumer Property Education’ programme for First Time Buyers are:

• Blue Oak www.blueoak.co.za
• Credit Health www.credithealth.co.za
• Law Property www.lawproperty.co.za
• Lightstone www.lightstone.co.za
• MoneySmart www.moneysmart.co.za
• My Budget Fitness www.budgetfitness.co.za
• Inspect-a-home www.inspectahome.co.za
• ICALL ASAP www.1callasap.co.za
• Real Estate Investor Magazine www.reimag.co.za
• Setsmol www.setsmol.co.za

The rollout of the first Consumer Education for first time buyer seminars and workshops will be held on the following dates:

• 26 June 2013 Mmbatho/Mafikeng – completed with great success
• 18 July 2013 Khayelitsha • 20 July 2013 Observatory
• 27 July 2013 George • August 2013 Blaauwberg
• August 2013 Langebaan

Pictures of the event can be viewed;

• on our website – under “press” - www. consumerhousingeducation.co.za
• or on Facebook www.facebook.com/#!/ConsumerHousingEducation?fref=ts

For more information:

You are welcome to contact Meyer de Waal – This e-mail address is being protected from spambots. You need JavaScript enabled to view it to arrange for your own clients to receive an invite to such seminars, or if required, to host a seminar under your exclusive “branding”.

Om ‘n eiendom in ‘n deeltitelskema te besit of huur, kan heelwat meer verpligtinge plaas op die eienaar of huurder ten opsigte van die nakoming van reëls en regulasies as wat van toepassing mag wees op ‘n eienaar of huurder van ‘n vol-titel eiendom. Die rede hiervoor is dat die regte van al die eienaars en huurders beskerm moet word ten einde almal in staat te stel om die volle genot van hul eiendom te hê. As jy dus ‘n eenheid in ‘n deeltitelskema besit of huur lees verder en let op die wyer stel reëls wat relevant mag wees tot jou.

Die inwoner van ‘n deeltitelskema se optrede is nie net onderhewig aan die bepalings van die Wet op Deeltitels (‘die Wet’) nie, maar ook aan die bestuursreëls en die gedragsreëls wat deur die Wet geskep word.

Die bestuursreëls bevat bepalings omtrent die bestuur en administrasie van die skema, die vasstelling van heffings, vergaderings en stemregte, wat redelik neutraal ten opsigte van die aard van die skema is. Die gedragsreëls, aan die ander kant, hou meer verband met die aard van die skema en die dag tot dag optrede van die eienaars en bewoners.

Dit is die plig van die trustees van die skema (wat as verteenwoordigers van die eienaars optree) om toe te sien dat die reëls van die skema behoorlik en korrek toegepas word. Reëls kan egter nie alleen die nodige harmonie in ‘n deeltitelbuurt skep nie. Hiervoor is die gesindheid van al die eienaars en huurders nodig. Eienaars en huurders moet streef om in harmonie met die ander inwoners te leef, hulself aan die gesag van die bestuur te onderwerp en bereid wees om ‘n positiewe rol daarin te speel.

Dit gebeur dikwels dat anti-sosiale gedrag van enkele inwoners (deur byvoorbeeld voortdurend harde musiek tot laat in die nag te speel) die harmonie in ‘n deeltitelbuurt versteur en gehoorsame eienaars en huurders moet hieronder lei. Netso kan die wanbetaling van heffings die regspersoon van ‘n skema in ‘n finansiële krisis dompel met agterstallige munisipale rekeninge wat ophoop en noodsaaklike instandhouding wat afgeskeep word en uiteindelik die her-verkoopwaarde van al die eenhede in ‘n skema benadeel.

Dit is ongelukkig so dat die Wet en die standaard reëls (naamlik die bestuurs-en gedragsreëls) minder streng is wanneer dit kom by die toepasing van sanksies in ‘n deeltitelskema. Trustees moet soms moedeloos toekyk terwyl enkele inwoners voortdurend die reëls verontagsaam. Die beste oplossing is om die bestuurs- en gedragsreëls te wysig ten einde trustees in staat te stel om gebruik te maak van effektiewe boetebepalings. Dit is egter belangrik om daarop te let dat boetebepaling in die vorm van sogenaamde ‘huisreëls’ nie afdwingbaar is nie en liefs vermy moet word.

Die skepping van afdwingbare reëls waarvolgens boetes opgelê kan word, verg kundige opstelling en trustees moet dit nie sonder regsadvies aanpak nie. Maar dit kan gedoen word. Alle reëls deur die regspersoon geskep of gewysig moet redelik wees en op alle eienaars van soortgelyke dele op gelykmatige wyse van toepassing wees. Indien ‘n gewysigde reël nie hierdie toets slaag nie, mag ‘n Hof bevind dat dit onafdwingbaar is. Let ook daarop dat ‘n wysiging eers in werking tree wanneer dit by die kantoor van die Registrateur van Aktes geliasseer word.

A ‘rouwkoop’ clause included in a sale agreement provides for the purchaser to pay a deposit to the seller, which deposit may be retained by the seller should the purchaser decide to withdraw from the agreement. This does not constitute breach of the agreement, but is a mechanism whereby the purchaser legally buys his way out of the agreement.

Most sale agreements providing for the payment of a deposit, also contain a provision that this deposit will be forfeited should the purchaser breach the agreement. The Conventional Penalties Act of 1962 does however provide the purchaser with a remedy if the penalty exceeds the damages, as a Court may be approached for a refund of the difference between the penalty amount and the amount of the actual damages suffered.

The inclusion of either a penalty clause or a ‘rouwkoop’ clause in the sale agreement are effective methods for the seller to ensure that he is dealing with a serious purchaser.

The importance of financial literacy in buying and owning a home – flowing from the comments by Pravin Gordhan

Finance Minister Pravin Gordhan launched a strong attack on financial institutions, which he referred to as “greedy monsters” that put profits before the wellbeing of the people they are supposed to serve.

The problem

He referred mainly to the economic meltdown in 2008 but failed to mention the current crises being created by short term and unsecured lending. I t appears that lenders are favouring “fast” money. These credit lines are characterised by high interest rates (reaching up to 60% per annum) for unsecured loans repayable over shorter periods which range from 3 months to 5 years. In comparison, a bond repayment period is usually extended over 20 years, with interest rates currently ranging between 9 and 12% per annum. Recent statistics reveal that the rand value of unsecured lending is on equal par to that of secured lending.

With some 2,2 million South Africans in need of a home, it is a concern that mortgage approvals rose by a mere 4% in the past two years. This stands in stark contrast to unsecured lending which rose by 54% over the same period. We are unsure how the National Credit Act and ‘risky’ lending policies are applied. My Budget Fitness has therefore introduced the Home Owner Property Education School as a service to prospective buyers to improve their chances of obtaining home loan finance. Attendees are shown how to improve their credit rating and affordability.

They will learn how to increase cash flow by reducing monthly credit commitments through hands on education and training. We regularly encounter clients who have unsecured loans that are 4 to 5 times larger than their monthly salary. Prospective buyers who are over indebted with unsecured loans will quite often find their home loans declined. It appears that, since the introduction of the NCA, the general public is not necessarily receiving more protection against reckless lending, but rather just faster ways to obtain debt as lending institutions have developed advanced technology to expedite the approval of an unsecured loan.

One recent example is a client whose home loan was declined due to debt impairment and over-indebtedness. Joe (not his real name) borrowed R 9 000.00 from A Bank to pay back a loan taken out from C Bank 2 months ago. The loan from the first bank was a 4 month loan and cost him R2 400 per month. When Joe realised that he was struggling to pay the R2 400 per month, he then took up a new loan of R9 000 with another bank, with a repayment period of 8 months, which costs him R1 600 per month. His new monthly repayment is now less that the first loan, but in effect the new loan will cost him R12 800 in interest over and above the capital of R9 000.00 that has to be paid back by the end of the loan term. It will come as no surprise if he borrows a larger amount after 8 months to pay back the balance then due.

The rapid increase in unsecured lending increases the debt burden and has a negative effect on the credit profile of the people who are most desperate to own their own home, those that want to buy a house in the price range between R250 000 to R600 000.

In the current “affordable home loan” market, for every 1000 interested buyers, a property developer can expect to convert an average of only 40 into home owners. The search for mortgage finance by a prospective home owner may start with online research on how to obtain a home loan, as some websites offer home loans even to “blacklisted” customers. If you visit your bank or work through a mortgage originator you will find that banks are in an extensive campaign to out-do its competitors to provide more attractive banking packages. However with interest rates being the lowest in many years, in the affordable home loan market more that 65% of all home loan applications are still turned down. Property developers say that they have to sell the same house three times before the bank will approve the buyer for a home loan. The lack of affordability to service the required bond repayments and impaired credit behaviour appears to be the main reason why bonds are declined in the affordable market, such being household incomes that earn below R16 000.00 per month.

The solution

We conducted a study over the past 4 years to show why home loans are declined and decided to offer a service to prospective buyers by guiding them through the basic steps on how to buy a home. We realised we need to introduce education and budget behaviour which started the concept of ‘Home Owners Property Education School’.

In the School we show the prospective buyer how to buy a home with reference to the A B C, such being special focus on Affordability, Behaviour and Castle, the latter being the property and or deposit offered as security if required.

As the foundation, home ownership education to the prospective buyer is supported by Setsmol, a company specialising in home ownership education for clients of Standard Bank, ABSA, FNB, and Anglo Mines. The service and experience of Setsmol, who has been involved in home ownership education for more than 10 years, is invaluable as Setsmol has trainers throughout South Africa, and can perform the training in most of the official languages. E- Learning, which was recently introduced through the collaboration of another group, expands the service and enables the participant to work through a series of web-based training modules in support of the home ownership education.

We need to enable a client who participates in the education programme to change his credit spending behaviour. First we discuss the client’s goal – and then work out a plan to reach the goal. The goal of the client is usually linked to the purchase price of the property he wants to buy.

With the client’s collaboration we then analyse and capture his monthly budget and debt exposure through a Budget Calculator. A revised budget will be prepared for the client with the aim to meet his goal. Not every goal and time period will be the same as each client has different debt exposure, income and surplus funds that need to be worked with. The client usually participates for a period of 6 months or longer in the programme and receives mentorship and education on a regular and structured basis.

A tool to track expenses through a mobile phone was developed. We found that few clients actually have a budget and manage their salaries and expenses on a structured manner. We thus had to provide a tool to assist the clients to make the budgeting easy, which is why we developed the mobile2budget tool to capture each rand that you spend through your mobile phone. Since not every customer has a smart phone the challenge was to develop a tool that can relay a budget expense through a USSD or a WAP message to ensure that any type of phone can use it. With Mobile2budget you can first create your own budget, and then capture each rand that you spend by using your mobile phone. Messages are sent in an electronic format to a ‘back office’ electronic bookkeeping system that captures each expense in a particular category, such as food, entertainment and petrol and 25 other expense categories. You can view your expenses by logging into the website and soon adjust your expenses as you become more aware of your actual spending.

To enable you to stay within your budget, your personal trainer and mentor will engage with you on a regular basis to assist with planning and suggest changes to ensure that you stay within your budget. Only once you really know how much money you waste on unnecessary items can you start to adjust and trim your budget. In doing so you will start to reduce your debt and thus improve your credit rating and profile. We are amazed how our clients change their behaviour and regularly phone us to announce, “I have just received extra money and used this money to reduce debt that used to keep me awake at night – I am now closer to reach the dream of owning my home.” Prior to enrolling in the education programme, they would have spent that extra money over the weekend.

Rent2Buy

The concept to rent a property with the option to buy also forms part of other products developed over the past few years. With rent2buy, the prospective buyer will rent a property and pay rental that is equal to a bond repayment, plus rates and taxes. Additional rental payments, over and above the market related rental, can be credited to the purchaser to enable him to build up a savings account during the duration of the rental period. It is required that the rent2buy tenant participates in the budget fitness rehabilitation for the duration of the rental period. Not every client whose bond has been declined will be able to rent a property with an option to buy, as the client must first pass the rent2buy required affordability and credit behaviour test.

During the 6 month period in the School, the client receives the assistance of the budget fitness mentor, a bespoke personal budget, a budget calculator, home ownership education, E- Learning and the mobile2budget tool. These work together to support the quest to become a responsible borrower who will understand the responsibilities of managing a budget, servicing a mortgage, rates and taxes and understands the obligations of a home owner. One of our main objectives is that, once a property is purchased, the owner must not lose the property. After all, your home is your castle! One major bank has already engaged in a pilot project and many property developers are also participating. They realise the value of education, which is the key to responsible and sustainable lending.

Sectional title living has grown in popularity over the last decade for reasons which include heightened security and a more communal way of living. Sectional titles tend to be more affordable which makes it easier for young people to own their own property. However buying into a sectional scheme has its advantages and disadvantages.

What is a sectional title?

The concept ‘sectional title’ describes the separate ownership of units or sections within a complex or development. When you buy into a sectional title complex, you purchase a section or sections together with an undivided share of the common property, which are known as units. A sectional title unit may refer to anything from a mini subtype house, a semi-detached house, a townhouse, a flat or apartment to a duet house.

Ownership of sectional title property involves a number of elements, bearing in mind that the unit consists of a section plus an undivided share in the common property.

The first element is the section, which is exclusively owned by the owner thereof. The second element is the common property, which is owned by all the owners in undivided shares, meaning that you become a joint owner of the common property of the sectional title scheme. The third possible element is the right to exclusively use certain parts of the common property for example a garage, a garden or a storeroom. Even though the owner does not own the exclusive use area, he is the only person that has the right of use thereof.

Advantages of sectional title ownership

Living in a sectional title has its advantages. An owner of a unit in a sectional title scheme automatically becomes a member of the scheme’s body corporate. The body corporate is the legal entity that owns and controls the common property in the sectional title scheme. The body corporate is responsible for laying down the rules that have to be adhered to by all the owners.

The body corporate receives funds from all the owners by means of levies, which are used to pay for the expenses of the sectional title scheme. Unlike freehold properties, where the owners have to pay for their own home insurance and for the upkeep of the pavement, garden and exterior of their homes, owners of sectional title units pay a monthly levy instead. The levy usually includes the insurance premiums, maintenance of the common property, wages and salaries of cleaners, security and other staff involved in maintaining the common property, as well as any water and electricity required for the common property. Owners of sectional schemes usually only need to pay for their rates and taxes, insurance for the contents of their home, their own private gardens and for their monthly electricity and water consumption. The specifics may differ slightly from complex to complex.

As the different units are within close proximity to one another, as compared to freehold properties, sectional titles have a greater sense of communal life. This allows for greater interaction which means that close knit communities can be and usually are formed. It is also perceived to be more secure. Sectional title developments generally have good perimeter and entrance security, which is usually included in the monthly levies.

Buying into a sectional title scheme may be more affordable than buying into freehold property. The cost of living in a sectional title is often lower because the cost of maintaining the common property is shared by all the owners. Sectional title units are also very popular in the rental market and are usually leased out easily.

Disadvantages of sectional title ownership

Living in a sectional title complex can also have its disadvantages. Unlike full-title ownership, where the owner is in complete control and is financially responsible for the property in its entirety, a person who invests in a sectional title scheme will own part of the scheme, meaning that the owner has invested in and is part of a small community. As a result, they will need to comply with the management rules and conduct rules as determined by the body corporate. The body corporate may adopt rules relating to the keeping of pets, play areas and access to communal areas.

The rules and regulations of any particular complex may change, and even though all sectional title investors or owners may not necessarily agree with the changes, they would not have the power to change them individually.

Owners of sectional title units also do not have the freedom to alter, renovate or expand their sections without the approval of the body corporate. In addition, all the owners are jointly and separately liable for the debt of the body corporate, which means that if an owner does not pay his/her share, it may become the other owners’ problem as well.

Conclusion

As sectional title ownership has many advantages but also disadvantages and a person should carefully weigh these up when considering whether to invest in a sectional title scheme. It is advisable to not only consider the legal implications of sectional title ownership, but to also investigate whether the sectional title scheme is financially sound and well managed prior to investing and establish beforehand what the rules of the body corporate are. If necessary, the advice of your attorney may assist in ensuring that you are fully aware of your legal rights under the sectional title.

Many prospective sellers are confronted with an invitation by estate agents to grant them a sole mandate for the sale of their property. 9 out of 10 times the immediate reaction is to decline the offer due to a perception that a sole mandate is only a clever way for the estate agent to obtain exclusive rights to your property which in turn will result in your property not being effectively introduced to the market and decreasing your chances of a successful sale.

Looking closer at market realities and understanding the marketing approaches of estate agents shows that this perception by prospective sellers may be ill conceived, especially if a sole mandate is granted to a reputable estate agency.

However, for a prospective seller to be comfortable in granting a sole mandate to an agency, it is important that the seller understands what is implied by a “sole mandate” as well as what the consequences of granting a sole mandate are.

Nature of a Sole Mandate.

The Code of Conduct for estate agents states that no estate agent shall offer property for sale unless he is duly authorised thereto in terms of a mandate granted to him by the seller. An estate agent can act in terms of either an open mandate or a sole mandate.

An open mandate allows a seller to exercise his right to enter into contracts (to sell his property) with as many estate agencies as he pleases. Thus no exclusivity is afforded and the spoils go to the agency introducing the first successful buyer.In terms of a sole mandate, the seller undertakes to appoint a sole estate agent to exclusively market his property for a specified period of time. In return the estate agent undertakes to devote the bulk of his time and resources to market the seller’s property, possibly including advertising and web listing space as part of the marketing strategy. Consensus exists in that the seller knows that he has awarded exclusivity to the agent and the agent understands that for the period of the mandate he must use the sole mandate to try and sell the property. Any breach of the mandate may result in an aggrieved party having a claim for specific performance and/or damages against the other.

Requirements for a Sole Mandate.

The Code of Conduct requires that a sole mandate must be in writing, as opposed to an open mandate that may be granted verbally. The seller must sign the sole mandate and the expiry date of the mandate must be recorded in the agreement. The estate agent must furnish the seller with a copy of the mandate upon conclusion thereof.

The Code of Conduct for estate agents also protects sellers, by requiring that the estate agent must explain the meaning and consequences of the material provisions of the sole mandate to the seller. In particular, the estate agent must explain the legal implications should the seller during the currency of the sole mandate sell the property without the assistance of the estate agent or through the intervention of another estate agent.

What are the benefits to a seller of a Sole Mandate

A sole mandate excludes competing agencies that act as free riders in the market. A sole mandate, therefore, serves as incentive for the reputable estate agency to focus all its energy and resources on selling a property.

The estate agent should pitch a detailed marketing plan in his endeavour to procure a sole mandate. The prearranged and agreed marketing plan may have as a result, amongst other things:

• a faster sale;
• less inconvenience;
• security;
• accountability;
• avoid competing agents’ fee claims; and
• a higher price being achieved.

To Summarize.

There is considerable merit in considering the granting of a sole mandate to a reputable estate agent as such a mandate serves as incentive for the estate agency to focus its energy and resources on selling your property. Importantly, the choice between a sole mandate or open mandate or even a dual mandate between two estate agencies remains the privilege of the seller and should be carefully considered when commencing the sale of your property. Where a sole mandate is considered, careful scrutiny of the terms of the provided sole mandate agreement is important to ensure that such reflects the understanding between seller and agent.

The Rental Housing Act 50 of 1999 (“the Act”) came into effect on 1 August 2000.  The aims of the Act are to regulate the relationship between tenants and landlords by laying down general requirements relating to leases, making provision for the establishment of Rental Housing Tribunals in each province, and establishing principles to govern conflict resolution in the rental housing sector. The Act furthermore defines a “landlord” as the owner of a dwelling or his/her authorised agent. 

Two crucial provisions contained in this Act are discussed below. The first is that the Act provides that a lease does not have to be in writing, but a landlord must reduce it to writing if a tenant requests him/her to do so. In addition, certain provisions are deemed to be included in the agreement. In other words, the provisions form part of the agreement whether or not the parties actually agreed thereon or included it in their written or verbal agreement.

These deemed provisions include:

• That the landlord must furnish the tenant with written receipts for all payments received.
• That deposits paid by the tenant to the landlord/agent must be invested by the landlord/agent in an interest-bearing account with a financial institution and the landlord/agent must pay the tenant interest at the rate applicable to a savings account with a financial institution. The tenant may request the landlord/agent to provide him/her with written proof in respect of the interest accrued on the deposit, and the landlord/agent must provide this on request.
• That the tenant and landlord/agent jointly, before the tenant moves into the dwelling, inspect the dwelling to ascertain whether or not there are any defects or damage to the dwelling. If there are any defects or damage, it must be recorded in writing and attached as an annexure to the lease.
• That, at the expiration of the lease, the landlord/agent and tenant must arrange a joint inspection of the dwelling to take place within a period of three days prior to the expiration of the lease. This is necessary, amongst other things, to determine whether the tenant caused any damage to the premises during the period of the lease.
• That, on the expiration of the lease, the landlord/agent may apply the deposit and interest towards the payment of all amounts for which the tenant remains liable under the lease, including the reasonable cost of repairing damage to the dwelling during the lease period. The balance of the deposit and interest, if any, must then be refunded to the tenant by the landlord/agent not later than 14 days after the tenant has vacated the dwelling.
• That the receipts which indicate the costs which the landlord/agent incurred in repairing any damage to the dwelling must be made available to the tenant for inspection as proof of the costs incurred.
• That, should no amounts be due and owing to the landlord/agent in terms of the lease, the deposit, together with the accrued interest, must be refunded by the landlord/agent to the tenant, without any deduction or set-off, within seven days of expiration of the lease.
• That, failure by the landlord/agent to inspect the dwelling in the presence of the tenant upon the expiry of the lease, is deemed to be an acknowledgement by the landlord/agent that the dwelling is in a good state of repair. The landlord/agent will then have no further claim against the tenant and must then refund the full deposit plus interest to the tenant.

It is important to note that these standard provisions listed above are enforceable in court and may not be waived by the tenant or the landlord.

The second important provision relates to the establishment of Rental Housing Tribunals (“Tribunals”) in each province. Complaints may be lodged by mail or facsimile or delivered in person to the office of a Tribunal. Any dispute that arose as a result of an unfair practice (as defined the Act) must be determined by a Tribunal unless proceedings have already been instituted in another court. However, a person retains the right to approach an ordinary court to institute proceedings for the recovery of arrear rental or for eviction in the absence of a dispute regarding an unfair practice. A ruling by the Tribunal is deemed to be an order of the magistrate’s court in terms of the Magistrate’s Court Act, 1944 and the proceedings of a Tribunal may be brought under review before the High Court within its area of jurisdiction. 

Contact details for the Rental Housing Tribunals:

Western Cape Housing Tribunal:
27 Wale Street, Ground Floor, Cape Town
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A trust is a legal entity with its own distinct identity. It has the contractual capacity to acquire, hold and dispose of property and other such assets for the benefit of its nominated beneficiaries. All trusts are governed and administered in terms of the Trust Property Control Act, and formed and governed in terms of a trust deed, a written agreement concluded between the trustees and the founder of the trust.

Perhaps the most significant purpose for establishing a trust is the separation of ownership, which is often desired for reasons including asset protection, risk mitigation and limiting ones tax liability. In order for the trust to transact, a trustee(s) are duly appointed in the trust deed who are thereby authorised to act on behalf of the trust. A trustee may act on behalf of a trust provided that he has been duly appointed to act in this capacity in the trust deed, that the trust has been registered with the Master of the High Court and the Master has authorised such appointment in writing by issuing Letters of Authority to this extent. Further, the trustees’ powers to transact are set out in and may be limited by the trust deed.

There are various advantages related to purchasing property in a trust as opposed to buying it in your personal capacity of which the following are the most prominent:

A trust is a flexible vehicle, capable of catering for various changes and uncertainties occurring in one’s life over time e.g. a larger family, death, insolvency, legislative and financial changes and other circumstances.

Since the property is not registered in your name, the value of your personal estate upon death is reduced. The direct implication hereof is a reduction in your estate duty exposure. Also, should the asset value have increased over time, this growth will be excluded from your estate and the capital gains tax (“CGT ”) payable on your estate is reduced accordingly. Executor’s fees pertaining to these assets will also be eliminated.

Provided that you do not establish your trust(s) with the intention of prejudicing creditors, purchasing or transferring a property into a trust helps to protect the specific asset from creditors.

It is advisable to create and operate a trust with appropriate tax advice. In this way a trust will enable you to mitigate your tax liability with specific reference to income tax, CGT, estate duty, donations tax and transfer duty.

Trusts are excellent succession planning tools as a property bought in a trust can remain in the trust indefinitely. Consequently, there is no need to transfer the property from the deceased into the name of his heir. In turn this saves on unnecessary transfer costs and CGT duty.

When finance is required to purchase a property in the current “market” the banks are less likely to grant a 100% bond to a trust and demand a deposit of up to 20% when a trust acquires a property. It appears in some instances individuals may receive up to 100% property finance.

Looking at the downside, the following count under the most burdensome disadvantages of purchasing property in a trust.

All trusts are taxed at an income tax rate of 40%. Consequently, it seems to be more favourable to buy a property in your individual capacity rather than in a trust. Here is why: CGT on the growth of the value of the property comes into play once a property is sold.

Trusts are subject to the highest inclusion rate. 66.66% of the net gain must be included in the trust’s taxable income for the year in which the property is sold. Consequently trusts are taxed at an effective rate of 26.6%. This is compared to individuals who are subject to an inclusion rate of 33.33% and a maximum effective rate of only 13.33%. However, if the profit or gains are distributed to the beneficiaries of the trust during the same tax year, the tax payable may end up being the same amount, as if a natural person is disposing of a second property.

Another downside of the trust owning the property is that the founder does not enjoy control over that property as the trust will be the legal owner of the property and the trustees will have the power to administer same.

Therefore based on the above, if administered correctly, one can benefit tremendously from the exercise of purchasing a property in a trust. It is, however, crucial to determine whether the addition of a trust to your portfolio is necessary and beneficial based on your individual needs and circumstances.

When you register a bond over property and the Title Deed has a condition prohibiting alienation of the property without the written consent of the relevant Homeowners Association, a document containing consent to register the bond and waiving the Title Deed condition, must be obtained from the Homeowners Association and lodged at the Deeds Office.

Should this consent not be obtained and lodged with your bond at the Deeds Office, the Registrar of Deeds will not allow for registration to be effected.