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The TTPS Newsletter

One cannot open a newspaper anymore without some “expert” giving his two cents on the property market, it seems. Prices are going up, prices are going down, it’s the right time to buy, it’s the wrong time to buy, get in, get out, this area, that area…

It can be quite confusing. To help you make sense of it, our monthly electronic newsletter will provide you with the correct information when you need it. It is short, to the point and will help you to stay abreast of the latest developments in the property market. This is invaluable when you are looking to sell or let your property, or if you are looking to buy or rent property.

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So, if you want to impress people with your property knowledge or take charge of your property affairs, click here to subscribe!

Feedback on the Consumer Protection Act info session

Our very own Deon Terblanche recently (13 July 2011) presented a keynote talk on the implications of the Consumer Protection Act (the Act) for estate agents. This was at an information session on the Act held by the Institute of Estate Agents of South Africa (IEASA) in Wilderness at the Wilderness Beach Hotel.

Here’s a nice little piece written by one of own property consultants about her thoughts after the keynote:

“Let’s be honest. When I first heard that I would have to spend a Wednesday morning attending a seminar on the Consumer Protection Act – yet again – I wasn’t exactly thrilled.

Here we go again, I thought. Hopefully I will get through this one alive and won’t gnaw through my wrist from boredom halfway through it. I couldn’t think of a worse way to spend my time than to listen to a long and boring new piece of legislation that was going to be presented to me by a person who probably didn’t understand the act, let alone be able to present it.

The seminar was organised by the Institute of Estate Agents of South Africa of the Garden Route. To myself, and I bet a few other fellow estate agents as well, the seminar was actually very interesting and was presented in a way that was very understandable. Thinking that I would come out of it more confused than when I went in, this was a very pleasant surprise.

Congratulations to Deon Terblanche of our offices for getting something right that his predecessors before him couldn’t: conveying very important information in an understandable format.  This act has a lot of implications on how estate agents will do business in future. Yes, my initial thoughts about the act, and I believe that a lot of people would agree, was not positive at all. On second thought, though, the Consumer Protection Act is actually a good thing. All agents will be now be forced to give a new standard of professional service to their clients. As if we really needed to be reminded.

Maybe now after all these years the public will start viewing agents as property professionals and we will then be respected, and the selling of property will finally be regarded as a proper profession.”

Written by Annemarie Terblanche… who managed to win a bottle of wine at the seminar!

Annemarie winning the bottle of wine at the IEASA Seminar on 13 July 2011

Update to the proposed Property Rates Amendment Bill

The Ministry for Cooperative Government and Traditional Affairs (COGTA) came out with a very welcome media statement yesterday, 18 July 2011. This was in reply to the public outcry regarding the wording of the proposed Property Rates Amendment Bill tabled on 9 June 2011.

Property owners and the property industry as a whole can sigh a collective sigh of relief again. It will still be possible to own two or more residential properties without having to pay commercial tax rates on the second and third (and further) properties owned.

The quick response by COGTA must be welcomed. The property market is in the beginning stages of a recovery, which should be nurtured. Unnecessary distractions such as these are unfortunate.

The full media statement is quoted below:

“The draft Municipal Property Rates Bill was gazetted for comment on 9 June.  We are keen to hear from the public on the Bill. The last date for comments is 22 July.

Deputy Minister Yunus Carrim says “We understand, especially in these difficult economic times, and with increases in the cost of municipal services, that house-owners are anxious about property rates. But contrary to media reports on the draft Bill, people who own more than one residential property will not have to pay commercial rates on their additional residential properties. The intention is to ensure that guest-houses, bed-and-breakfast establishments, small hotels and the like pay commercial rates. If necessary, we will amend the draft to make this clearer before submitting the Bill to parliament.”

The draft Bill is in response to complaints from the public and some municipalities over the years about the lack of clarity of aspects of the original Act and difficulties in implementing it. There was widespread consultation on the draft that has been gazetted. Public hearings were held in April last year in all the provinces, and were attended by stakeholders such as ratepayers’ organisations, agricultural unions, business chambers, state owned enterprises, community organisations, traditional leaders, municipalities, and individual ratepayers.

“Essentially, the Municipal Property Rates Act is being amended to make property rating simpler, more transparent, more uniform and easier to implement,” says Deputy Minister Carrim.

The only policy shifts in the Bill are:

• Properties used for trading in and hunting of game will be regarded as agricultural property and subject to rates in the interests of equity and fairness.
• There needs to be greater uniformity across municipalities in rating houses owned by recipients of old-age pensions and disability grants
• Aspects of public service infrastructure will be excluded from property rates because of their contribution to the country’s developmental needs.”

 

Transfer duties lowered

The 2011 Budget yesterday had great news for property sellers and buyers. Of course, our Minister of Finance announced higher sin taxes and an increase in the fuel levy of 10c per liter. Seems we’ll have to dig deeper in our pockets yet again. So what’t the great news then for buyers and sellers?

For the first time since 2006, Government announced lower transfer duty on property up to a maximum of R600,000. This means in the 2011-12 fiscal year, no transfer duty will be payable on a property priced at 600,000 rand or less.

The revised transfer duty rate structure will apply to properties sold in terms of purchase agreements concluded on or after February 23. This will also apply to legal persons, such as closed corporations, companies and trusts.

It is also proposed that the transfer duty exemption and sliding scale rate also apply to non-natural persons (i.e. close corporations, companies and trusts). The transfer duty rate for these persons was 8% of the value of the property to date. A significant effect of these amendments is that it would no longer be more expensive from a transfer duty perspective to purchase property in a company or a trust as opposed to in a natural person’s name.

The transfer duty payable on the purchase of property on or after 23 February 2011 would be calculated in terms of the following table:

Value of property	Transfer duty rate
On the value of the property that does not exceed R600 000:	0%
On the value of property that exceeds R600 000, but not R1 000 000:	3%
On the value of property that exceeds R1 000 000, but not R1 500 000:	R12 000 plus 5% on the value exceeding R1 000 000
On the value of property that exceeds R1 500 000:	R37 000 plus 8% on the value that exceeds R1 500 000

The maximum value of a property exempted from transfer duty was R100,000 in 2002-03; R140,000 in 2003-04; R150,000 in 2004-05; R190,000 in 2005-06; and R500,000 in the period 2006-07 to 2010-11.

This lowering of transfer duty and banks’ mortgage lending criteria for low-income and first-time home buyers should support the lower end of the market. In view of no further interest rate cuts expected in 2011, lower transfer duty would be a positive factor contributing to the performance of the property market in 2011.

It was also announced in the Budget that investigations are underway on a tax incentive for property developers to increase the supply of affordable housing of below R300,000.

 

Consumer Protection Act delayed

The implementation of the new Consumer Protection Act and Companies Act has been delayed to 1 April 2011.

The delay will enable the department to finalise all processes required to effectively administer these two pieces of legislation, as well as give business and the public enough time to prepare themselves for compliance with the new laws.

According to the Department of Trade and Industry, the two pieces of legislation have significant impact on business operations.

Minister of Trade and Industry, Rob Davies, deferred the implementation of the acts to allow for more consultation with stakeholders before finalising the legislation.

The postponement, however, only relates to the general implementation of the various provisions of the two Acts. It does not extend to the establishment of the two institutions required to implement or administer both legislation – namely the Companies and Intellectual Property Commission and the National Consumer Commission.

“These institutions will come into existence and commence with administrative operations as stipulated in the Acts in the third quarter of this financial year. The public and stakeholders will thus be able to approach them for assistance and guidance as soon as their establishment is announced in due course,” said the department.

Certain provisions of the Consumer Protection Act — which became effective on 24 April 2010 — will now be implemented by the National Consumer Commission, which will entail the current staff of the Office of Consumer Protection.

The provisions include those contained in Chapter 1 and Chapter 5 as well as section 120 of the Consumer Protection Act. As provided for in Schedule 2, item 9(1) of the Consumer Protection Act, the employees of the department tasked with the administration and enforcement of repealed laws are employees of the National Consumer Commission as of the early effective date, 24 April 2010.

Any applications or clarification required by members of the public or stakeholders relating to enforcement of provisions of Chapters 1 and 5 can be directed to these employees of the Office of Consumer Protection.

Redistribution of land

A news report on Realestateweb today states, “the land revolution was a necessary one, but South Africa was not going to go the way of Zimbabwe,” according to the ANC Youth League president, Julius Malema.

“We are not going to do it that way [like Zimbabwe]. We are going to pass legislation,” he told a “Mining for Change” conference in Sandton. Malema said the state would make an offer to land owners which they would be compelled to take. “You don’t give us an offer… you are too expensive,” he said.

He said large parts of South Africa, in the Western Cape in particular, were in foreign hands. “This country belongs to the people who live in it, black and white…. its important as we move forward that we redistribute this land to the people of South Africa. If we don’t take a radical stance to intervene, rural women will never realise economic freedom in their lifetime. ” Black women in rural areas were also denied land — ownership of which plays a critical role in participating in the South African economy.

We support the sentiments of Mr. Malema. Property ownersip is necessary for economic participation, and we need to redress the economic inequalities brought about by our divisionary historic political systems. We do wish to urge the lawmakers to exercise extreme care though. Protection of property rights is equally important for economic growth and stability. It’s our opinion that sensible policies for redistribution of land at market related values will be so much more effective than anything resembling “revolution”.

If we do not protect our economic stability, what kind of economy would previously disadvantaged individuals have to participate in?

Land rights and registration in South Africa

We often get asked about land rights and the protection thereof in South Africa. Cliffe Dekker Hofmeyr, a prominent law firm in South Africa, published a guide to doing business in South Africa that should answer most questions.

Right to Property

The right to property is enshrined in the Bill of Rights contained in the Constitution of the Republic of South Africa Act, 1996. Section 25 of the Constitution provides that no one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.

Section 2 records that the Constitution is the supreme law of South Africa. Any law or conduct that is inconsistent with the Constitution is invalid, and the obligations imposed by the Constitution must be fulfilled.

Registration of Title

The registration of rights in land and other immovable property is regulated by the Deeds Registries Act, 1937. The transfer of ownership in land is effected by registration in a deeds registry in accordance with the provisions of the Deeds Registries Act.


South Africa boasts a sophisticated and efficient system of land registration. The system is one of registration of title as opposed to a system of registration of deeds, as is found in many western countries. Although the system of registration may be described as a negative system, that is one in which the state does not guarantee title, disputes as to the validity of title are few and far between. The South African system of registration effectively provides the registered owner of land with security of title.


This security of title is the result of the respective responsibilities carried by professional land surveyors (under authority of a Surveyor-General), the deeds registries established throughout South Africa (each under authority of a Registrar of Deeds, with a Chief Registrar of Deeds exercising authority on a national basis) and an independent attorneys’ profession. In the latter case, the preparation and execution of deeds requires the services of an attorney in professional practice, who has passed a specialist examination in the law and practice of conveyancing, and has been admitted to practice as a conveyancer by the High Court of South Africa.


The reliance placed on the title afforded an owner by due registration is aptly summarised by Hoexter J A, in the Appellate Division case of Frye’s (Pty) Ltd v Ries (1957(3) 575 AD), where he said the following (at 582):


“As far as the effect of registration is concerned, there is no doubt that the ownership of a real right is adequately protected by its registration in the Deeds Office. Indeed the system of land registration was evolved for the very purpose of ensuring that there should not be any doubt as to the ownership of the persons in whose names real rights are registered. Generally speaking, no person can successfully attack the right of ownership duly and properly registered in the Deeds Office. If the registered owner asserts his right of ownership against a particular person, he is entitled to do so, not because that person is deemed to know that he is the owner, but because he is in fact the owner by virtue of the registration of his right of ownership.”


Land Tenure and Rights in Land

Although South Africa still recognises an historic system of 99 year leasehold, the primary real right in land is that of ownership, akin to the English concept of ‘freehold’ title, and most land in South Africa is privately held by outright ownership.


Whilst the common law ownership of land includes the ownership of all fixed improvements erected on the land, South African law also recognises separate ownership of buildings or parts of a building. Such ownership is regulated by the Sectional Titles Act, 1986. Sectional title ownership is also registered in a deeds registry.


Statutory rights in land are also provided for in the Share Blocks Control Act, 1980. This form of tenure entitles the holder of shares in a share block company to the use and enjoyment of land owned or leased by the share block company. This form of tenure is not registered in a deeds registry and the rights attaching thereto are protected by the Share Blocks Control Act.


South African law recognises various limited rights in land, the most common of which is the relationship of landlord and tenant. Leases are capable of registration in the deeds registry and, in such instances, afford the tenant greater rights than in the case of an unregistered lease. Various servitudes recognised under South African common law, and capable of registration in a deeds registry, confer limited rights in land, such as for example, the right to use land and/or to enjoy the fruits of land.


Rights to minerals in South Africa are regulated by the Mineral and Petroleum Resources Development Act, 2002. The Act makes provision for equitable access to and development of the nation’s mineral and petroleum resources, and recognises the internationally accepted right of the State to exercise sovereignty over all the mineral and petroleum resources within the Republic. Provision is made in the Act for guaranteeing security of tenure in respect of prospecting and mining operations. The registration of mineral and petroleum titles and other related rights and deeds is effected at the Mineral and Petroleum Titles Registration Office, in accordance with the provisions of the Mining Titles Registration Act, 1967.
Rights in land are subject further to regulation relating to environmental issues and concerns. Applicable legislation such as the National Environmental Management Act, 1998, is aimed inter alia at preventing pollution and ecological degradation, promoting conservation and securing ecologically sustainable development and use of natural resources while promoting justifiable economic and social development.
Certain activities require authorisation before they may be conducted. For example, an environmental impact assessment and environmental authorisation may be required under the National Environmental Management Act’s Environmental Impact Assessment Regulations, 2006, where a landowner intends to develop his or her property.


Taxes, Duties and Fees

Transactions relating to the acquisition and disposal of land are subject to payment of taxes and duties. Fees are payable to a deeds registry in respect of each transaction registered. Professional fees are also payable to a conveyancer.


In the case of the acquisition of land or any real right in land (as well as certain transactions involving companies, close corporations and trusts that own residential property), a transfer duty is, subject to certain exceptions, payable prior to registration in the deeds registry. This duty generally amounts to 8%of the value of the land or right in the case of companies, and a lesser sliding scale applies where an individual is concerned. Certain transactions are exempt from transfer duty. This is regulated by the Transfer Duty Act, 1949.


In terms of the Value-Added Tax Act, 1991, value-added tax (VAT) (currently at the rate of 14%) is payable, subject to certain exemptions, on the supply by a vendor of goods or services supplied by him in the course of an enterprise. Goods include fixed property and any real right in fixed property. Certain transactions relating to fixed property are subject to VAT at a rate of 0%. The acquisition of land in terms of a transaction that is subject to VAT is exempt from transfer duty.


Copyright – Cliffe Dekker Hofmeyr “Doing business in South Africa”

Some tips to save money on property transactions

A “funny” place to save money is through the way that you structure the purchase of multiple units. Don’t let your estate agent write one contract for more than one property at a time.

For example, if you buy two flats for R500 000 each and purchase them together on one Deed of Sale (Offer to Purchase) you will then pay R37 641 transfer and attorney fees. However if you were to buy them on two separate contracts you would only pay R8 021 each (R16 042).

The saving comes from not paying transfer duty below R500 000 and reduced attorney fees at the lower rate.

However, when it comes to the bond application putting as many properties together as possible is the way to go. Two R500 000 bonds would cost you a total of R11 268 while a single R1m rand bond would only cost R9 114.

While we never suggest that you should negotiate the attorney’s fees we often find that if you stick to one attorney and do a number of transactions with them that they are prepared to offer you a reduction in their fees because you are a good customer. So perhaps it does not pay to shop around but rather to stay with the same transferring attorney if the seller will allow you.

Everyone wants to do everything as cheaply as possible, but be careful. Sometimes penny-wise is pound-foolish.

Going to the estate agency that offers the lowest commission will not necessarily mean that you will get the cheapest selling price. Are they able to assist the seller in putting their property into the market at the “right” price or will they simply take the price that the seller asks for?

Many estate agents do not look at recent sales when giving the seller advice on the likely selling price of their property but rather just add their fees to the seller’s asking price.

A good estate agent will explain the selling process to Sellers including how buyers compare properties before buying the one that suits their needs best at the best price. This is vitally important for investment properties where buyers are looking for a financial return (net return on income after expenses – rental less letting fees, less rates and taxes, less levies, less allowance for maintenance etc). After all they are buying an investment.

Good estate agents may well have a better selection and more realistically-priced stock. They will also have their favourite investor clients who will hear about the “good buys” before other possible buyers.

*Mike Spencer recently on Realestateweb.co.za

The voetstoots clause – does it cover building plans too?

The position of buyers who sign for property where there are no approved building plans or where parts or all of the building have been erected in a way that does not comply with the National Building Regulations has changed twice in the last year or so. This is after a 2007 ruling by the Witwatersrand High Court has now been reversed by the Supreme Court of Appeal in the Odendaal v Ferrraris case, reaffirming the commonly accepted understanding of the law.

The voetstoots clause lays the responsibility for latent defects (defects that cannot be seen with the naked eye or with reasonable inspection) on the buyer’s doorstep if the seller did not intentionally withhold such latent defects from the buyer. If a buyer hopes to avoid the consequences of a voetstoots sale, he must show not only that the seller knew of the latent defect and did not disclose it, but also that he or she deliberately concealed it with the intention to defraud. In the recent Odendaal case, the buyer was unable to prove the latter, and the appeal was upheld.

In 2007, the Witwatersrand Court had ruled that sellers could no longer hide behind the voetstoots clause and pass the responsibility for ascertaining the legality of the buildings’ plans onto the buyer. This created a mild panic among many property owners who were planning to sell older properties.Traditionally the voetstoots clause protected the seller against later complaints about the building not apparent at the time of the purchase but did not relate to the building’s legality. Only in cases where the buyer could prove that information on this matter had been deliberately withheld or misinterpreted did he have recourse to law.

The Witwatersrand judgement deemed that, except where expressly stated, sellers guarantee the buyer that the structures covered by the sale have received local authority approval and that the voetstoots exemptions refer only to defects, not to any plan approval process.

This decision has now been overturned. In the Odendaal vs Ferraris case the Supreme Court of Appeal reaffirmed the traditional understanding of the law, i.e. that the seller need not guarantee the building’s legal status. Buyers concerned about the legality of the building they plan to purchase must therefore once again make appropriate enquiries or ask the seller to provide a written warrant regarding this.

*Based on a recent article on Property24

How attractive is a trust as a vehicle to hold residential property?

Our blog post this week looks at one of those questions our clients often ask us, “Is it better to buy residential investment property in my own name or through a trust?” The short answer to this is that it depends entirely on your specific circumstances and requirements. There is a longer answer to this as well, which is provided here below by Dave Warneke, tax partner at Cameron & Prentice Chartered Accountants.

“The correct answer depends entirely on the circumstances of the investor. However, having said that, we find that the most common recommendation we make where the investor is a private individual and the property is a residential investment property i.e. not a primary residence, is for the property to be bought into a trust. Where the property is to be a primary residence, then by holding the property in a juristic vehicle such as a trust, the R 1.5 million primary residence exclusion for CGT will be lost when the property is disposed of. This can make this option less attractive, as the primary residence exclusion results in a maximum saving of R 150 000 in CGT.

The advantages and disadvantages of trusts as vehicles for holding residential investment property are as follows:

Advantages

1. Compared to holding the property in the hands of an individual, Estate Duty is saved -at the rate of 20 % of the market value of the property at the date of death. Although an exemption from Estate Duty applies where the property is left to a surviving spouse, this in effect amounts to a deferral of the Estate Duty problem rather than a true saving, as Estate Duty is payable on the death of the surviving spouse.

2. Compared to holding the property in the hands of an individual, CGT on death is saved -at a maximum rate of 10 % of the market value of the property at the date of death less base cost. Although roll-over relief exists where the property is left to the surviving spouse, this amounts to a deferral of the capital gain rather than a true saving, as CGT is payable on the death of the surviving spouse.

3. Growth in the value of the property is protected from creditors of the investor.

4. Relatively low compliance costs: trusts are not subject to statutory audit.

5. Flexibility: a discretionary trust allows the trustees to allocate rental profits from the property to whichever beneficiaries they choose. The same applies to distribution of capital gains if the property is sold. This can achieve income tax savings and give effect to the wishes of the founder.

Disadvantages

1. Although Estate Duty at 20 % and CGT at 10 % on the death of an individual are saved by holding the property in a trust, if the trust disposes of the property and does not distribute the resulting capital gain, CGT is payable at the rate of 20 % of the capital gain, compared to a maximum CGT rate of 10 % for an individual investor.

2. If rental profits are retained in the trust and not distributed to beneficiaries, the rate of tax in a trust is a flat 40 %, compared to a sliding scale for individuals that only peaks at a rate of 40 % on taxable income above R 490 000 per annum.

3. Transfer Duty is at a flat rate of 8 % on the value of the property purchased by a trust. This compares with a sliding scale for individuals that only peaks at a rate of 8 % (on so much of the value of property as exceeds R 1 million.)

4. There are some compliance issues which also involve costs. The trust has to be set up, annual financial statements and income tax returns (annual and provisional) need to be submitted and meetings of trustees need to be held.

5. An element of control over the property can be lost as the investor has to abide by the wishes of the trustees. However, most trusts are so-called ‘dog-collar’ trusts in that the trustees are initially selected by the investor from persons that he /she trusts (and the investor would usually be one of the trustees).

6. Since a trust cannot enter into a pre-incorporation contact, the trust must first be set up (average time taken one month), before the offer to purchase document is signed.

7. The primary residence exclusion from CGT will be lost. This amounts to a maximum saving of R 150 000 in CGT on disposal of the primary residence.It’s imperative to weigh up the pros and cons, and talk to a professional who understands your unique circumstances.”