Property auctions: Get in on the action

Buying and selling properties through auction has always been a staple of the real estate market. And to this day, it remains one of the best ways to purchase properties at bargain prices. Unfortunately, numerous misconceptions around properties that go up for auction also exist, some of which are entirely unfounded and can be easily dispelled.

“Only properties that have been repossessed by the bank go on auction.”

Voluntary auctions are events where the seller puts their property on auction themselves in the hopes of increasing the selling price when prospective buyers are pitted against one another. These auctions aim to benefit the seller and offer buyers a more exclusive, hands-on arena in which to bid for the property they want.

Often, the market for a specific property is so exclusive, that listing it publicly will simply be a waste of time. In such cases, voluntary auctions provide sellers with a quicker turnaround time on the sale when only parties who have already shown interest in similar properties are invited to the auction.

“Properties on auction are usually falling apart and require extensive maintenance.”

With voluntary auctions, the state of the property rarely needs scrutinising, as the demand for the property is what brought the auction about. With bank and sheriff auctions, though, where homeowners have fallen in arrears with their bond repayments, or properties have been repossessed, the current state of the property may be of concern.

However, even while abandoned and derelict properties do go on auction regularly, most of the properties sold on auctions are there simply because of the homeowner’s financial situation, and not the property’s unsellable structural state.

“Your bid is blind and you never know what you’re really getting yourself into.”

A big concern for many buyers is that bids are final and cannot be reneged upon. That doesn’t have to mean you buy something you’ll regret, though. With property auctions, potential buyers are still able to request viewings of the properties on auction beforehand, as with regular properties on the market, so they do not enter the auction blindly.

“As a seller, you have to take what you get when the final bid comes in.”

Due to the discounted prices of properties sold on sheriff auctions (often going for less than 50% of the property’s value), sellers may be concerned that their property will be sold for less than they would have been able to get with a regular marketing approach, and that they will be forced to accept whatever bids they get on the day. But this is not the case. Auctions usually come with a ‘subject to confirmation’ clause, which allows the seller to accept or reject the final bidding offer. Sellers are also guided through the process by auction brokers who will advise them on realistic prices and help them create a competitive platform that will benefit them.

“Only people with enough cash on hand can partake in auctions.”

For buyers, the notion that they must have the money on hand is also one that needs to be dispelled. As with regular property purchases, financing can be used to purchase many properties on auction. The only catch is that the financing needs to be approved before you place your first bid to avoid placing a winning bid and not being able to commit to it. That said, there are auctions that demand payment immediately after the auction — the terms of such an auction will be disclosed beforehand, however.

Auctions can be hugely beneficial platforms for both buyers and sellers, as long as they are aware of the processes and the potential pitfalls. If you have your eye on a property on auction, or simply want to know more about the benefits that auctions may hold for you, get in touch us and let us help you navigate your way to the auction floor.

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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The role of homeowners’ associations

Finding the right home is not only about finding an architectural structure that meets your requirements (three bedrooms, sun in the afternoon, a yard for the dogs, access control for the kids, etc.). The search is as much about finding a community you want to become a part of. For many residents, the community that surrounds them is governed by an entity known as a homeowners’ association (HOA).

HOAs are created in full title or freehold housing establishments and are, at their core, responsible for the wellbeing of a residential area and the community that exists within its boundaries. An HOA will fall into one of two categories: a non-profit company or a common law association. When registered as a non-profit company, the HOA will be governed by the Companies Act and must appoint directors to manage its affairs. A common law association, on the other hand, is created informally and offers more leniency in its management, which is overseen by trustees instead of directors. While the formation of a common law association is indeed simpler, is does lack the security, accountability, and clout found in a registered non-profit company.

The responsibilities of the HOA include ensuring the upkeep of infrastructure and the creation of rules that ensure a harmonious living environment. The main purpose of these rules are to create a community that values the lifestyles and aesthetic preferences of the homeowners that reside within it and to create a sense of harmony. It is important for interested homeowners to familiarise themselves with the restrictions of the Memorandum of Incorporation (MOI) to ensure that they are comfortable with adhering to rules.

The rules created by the HOA are contained in its MOI, which should be made available to all new homeowners who move into the area. The rules of an HOA can include items such as quiet hours and regulate parking on sidewalks but can also include items that promote uniformity, such as what colour the exterior of a property may be painted and what flora may be planted in publicly visible areas.

When moving into a residential area run by an HOA, homeowners are required to become members of the HOA and will usually be required to pay an HOA fee. These fees primarily go towards the upkeep of the community’s infrastructure, including the maintenance of lawns and common areas, such as play areas and parks.

An aspect that is often overlooked when considering the scope of the HOA’s role, is the promotion of community building. Community activities and social events, such as yoga classes, book clubs, and even the classic braai, should be arranged by HOAs to bring the community together. HOAs can also promote activities such as recycling and encourage more environmentally conscious behaviour.

It’s clear that homeowners’ associations can play a vital role in the creation and wellbeing of communities when approached correctly. If you want to learn more about the creation of a homeowners’ association or have questions regarding the one you are a member of, get in touch with one of our professional property practitioners to assist you.

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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Navigating the real estate market in 2021

Many industries are piecing things back together again this year, as they try to recover from the effects of the pandemic or recreate themselves to remain relevant in a changing world. One industry that has been left unaffected to a great extent, and yet has had to re-create itself almost entirely in the same breath, is the real estate industry. As 2021 sets off, it’s important to understand just how the industry will shift gears in the months to come.

The biggest factor that will influence the industry is the fact that the public is in need of more guidance and advice than before. The uncertainty that still surrounds the economic landscape and the future of the world as it battles COVID-19 means that people are more cautious when it comes making real estate and investment choices. The role of property practitioners is thus more vital than ever in supporting the public through this period of recovery.

Property practitioners have a tough task ahead of them as they provide the public with confidence in their decisions, while also helping grow the market again so that that confidence is not misplaced. A vital part of this process, beyond the elbow grease and hard work that is already going into recuperating the industry, is the building of strong relationships with clients. Property practitioners may have acted as a “middle man” of sorts in many instances in the past, but their roles are being redefined as they provide more and more tailored services to those who are navigating the real estate landscape.

With the past year obliging so many industries to re-evaluate their way of doing business, the real estate industry has also sought out more streamlined solutions that put less strain on property practitioners while offering the public more efficient service. A big role player in this process is the adoption of Customer Relationship Management systems that allow property practitioners to enhance the way they interact with both existing and prospective clientele. This is especially of use when it comes to the rental market, where a rotating roster of clients needs to be connected with.

As a result of the continuing uncertainty and the weakness of the economy, the rental market is proving to be one of the most greatly affected. Where tenants are able to, 2021 will most likely find them choosing to continue renting where they currently are, opting for safety above prospects. Unfortunately, vacant rental properties could remain vacant for quite some time still as a result. This may be even more true for properties at the lower end of the price spectrum, as lower-income individuals have been some of the worst affected by the lockdown and TERS relief coming to an end.

As more and more tenants conduct research regarding their financial futures, many may also realise their rental amounts are almost the same as bond repayments would be, leading them to reconsider the possibility of becoming homeowners and bringing stability to their lives amid the storm. As more South Africans re-evaluate their futures, with considerations such as work-from-home options becoming more prevalent, many people are looking for homes that will better suit their changed lives, and renting may simply no longer be the answer to those plans.

All of this cements the necessity for property practitioners’ role in the months to come. If it is time for you to alter your real estate situation, enlist the guidance and advice of a trusted property practitioner to help you navigate whatever comes next.

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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Exit tax and homeownership

The exodus of South Africans to foreign jurisdictions has been well publicised, and due to this, much has been written about the so-called “exit tax” that applies when one ceases to be a tax resident in South Africa, as well as matters relating to foreign employment income earned. However, what is often overlooked is what happens when you emigrate but retain your home in South Africa.

The general principle is that when you cease to be a South African tax resident, your home (constituting immovable property in South Africa) will not be subject to the “exit charge”, since that immovable property always remains a part of the South African tax net. This means that should you initially keep your home in South Africa and only sell it a few years down the line, you are only likely to pick up any capital gains tax consequences once you do sell the home.

The question arises, however: What is the interaction is between you having used your home as a primary residence whilst in South Africa and you not having lived there after your emigration? It is important to note that the way in which you used your residence whilst not actually living there while aboard is irrelevant for the consideration below.

In terms of the Income Tax Act, the first R2 million of a capital gain made on the disposal of a “primary residence” is excluded for purposes of calculating your tax liability. However, since you were not resident in your home for the entire time during which you owned the property, it will not constitute as being your “primary residence” for the entire time. An apportionment must thus be made for the time during which you lived in that residence, and the time you used it for other purposes.

Taxpayers are often incorrectly advised that for purposes of the apportionment mentioned above it is the primary residence exclusion of R2 million that must be apportioned on a time basis to determine the capital gains tax exposure. However, paragraph 47 of the Eighth Schedule of the Income Tax Act is clear in that it is the capital gain that must be apportioned on a time basis for the period you were resident and the period in which you were not resident. The gain made in respect of the period during which you did not reside in the property as your primary residence is fully subject to capital gains tax, while the R2 million primary residence exclusion can only be applied to that portion of the gain during which you indeed resided in the property, as your primary residence.

Persons who currently reside aboard or intend to emigrate while retaining their property, which they used as a primary residence at some stage, are therefore encouraged to obtain professional assistance when doing the apportionment calculations to ensure that they are not prejudiced in any way (either through the overpayment or underpayment of tax in respect of the disposal of that property).

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)

Investment with a solid foundation

Buying real estate is more than finding the right home or location for your business – owning property is an investment that holds more benefits than you might know.

Income Predictability

While interest rates may alter mortgage repayments at first, real estate offers a somewhat constant financial investment. Once home loans are repaid in full, real estate offers the owner a constant income that does not fluctuate with the market, an income that can increase with inflation. Of all the investment types, real estate is the safest from external influence.

Increasing Value

Property appreciates in value over time. Thanks to South Africa’s reliable climate, real estate investments rarely depreciate due to natural causes, so long as the property is well looked after by its tenants and owner. Appreciation levels have increased at 6% per year, on average, since 1968, meaning your investment will grow no matter what.

Improve Your Investment

Where other investments rely on the financial market, the greater economy and an organisation’s performance to increase their value, property value can be greatly improved by improving the actual property. With a little elbow grease and dedicated planning, you can increase the value of your investment yourself.

Retirement Ready

A great benefit of owning property is that it is there when you need it the most. While the initial burden of home loan down-payments on cashflow can be rather strenuous, the weight lessens considerably over the years as the principal reduction increases. This means that your cashflow will increase as you near retirement, allowing you to invest your money more appropriately.

Up Your Equity

While you pay off your home loan, you are also increasing your equity as your property counts as an asset in your net worth. Through increased equity you will be able to gain more leverage in financial situations, when obtaining a loan, for example, and you will be able to grow your wealth more steadily as well.

Portfolio Diversification

Real estate investment holds less risk than other major class investments, allowing you to create a diversified and safer investment portfolio. Through a diversified investment portfolio, you ensure that your investments are not all influenced by the same external factors, such as a fall in share value (as has been seen during the COVID-19 pandemic).

When you start looking at investment options, it may be a wise decision to consider including real estate in your portfolio early on. Remember to reign in the assistance of the experts to help you find the perfect property to invest in.

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)

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