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)

How binding are body corporate fines?

In an estate or sectional title scheme, it is challenging to ensure that everyone will stick to the conduct rules and to aid this, body corporates often fine the chancers. How far can the body corporates stretch their fining, and are these fines binding?

 

Each body corporate may choose what to impose formally in their code of conduct unless a rule is already part of the conduct rules in terms of the Sectional Titles Act. This is the only way the fines can be binding as enforceable, and they have to be reasonable and fair.

 

When fines are imposed, they cannot favour or benefit certain residents while leaving others out of mind. Substantially, they must serve the same purpose. The notification of a fine must be received by the owner or resident through writing. There is a correct way in which fines may be imposed:

 

  1. Complainants to lodge complaint

     

This must be lodged in writing or through an incident report to the trustees or the estate’s managing agent.

 

  1. Notice of particulars of the complaint

     

The owner and the tenant, or the resident, must be given a notice of the particulars contained in the complained as well as reasonable time to respond to the complaint. The resident/tenant must also be given enough information regarding the incident, including the rules that they may have broken.

 

  1. Second notice

     

Should the owner or resident not heed the first notice, a second notice may be issued mentioning the contravention is continuous or has been repeated. The transgressor must then be invited to a trustee meeting where they will be given a platform to present their case or defend themselves.

 

  1. The hearing before the fine

     

Before a fine is imposed, a hearing must have taken place. In the meeting, witnesses may be called to testify in favour of the transgressor and the transgressor may state their side of the story. Those who laid the complaint may also be cross-examined.

 

  1. Discussing evidence

     

Once the hearing is over, the trustees may then review the evidence presented to them and make a decision on whether or not to impose the fine.

 

If a fine is imposed, the amount should be reasonable, substantial and be proportionate to the purpose of the penalty.

 

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)

Transfer duty

Transfer duty is a tax levied upon the purchaser of immovable property situated in South Africa.[1] The duty is levied in accordance with the following sliding scale and is based on the value of the property which is the subject of the transfer:

 

Value of the property (R)

 

Rate

 

0 – 900 000

 

0%

 

900 001 – 1 250 000

 

3% of the value above R900 000

 

1 250 001 – 1 750 000

 

R10 500 + 6% of the value above R 1 250 000

 

1 750 001 – 2 250 000

 

R40 500 + 8% of the value above R 1 750 000

 

2 250 001 – 10 000 000

 

R80 500 + 11% of the value above R2 250 000

 

10 000 001 and above

 

R933 000 + 13% of the value above R10 000 000

 

 

While the sliding scale above previously only applied to natural persons acquiring property, this is no longer the case, and legal persons too are subject to transfer duty based on the above table. (Previously, legal persons were subject to transfer duty simply at the maximum rate in the table being applied to the entire value of transfers where a legal entity bought property).

 

Based on the above table therefore property transfers involving property worth less than R900,000 are effectively exempt from transfer duty, although the tax exposure may quickly thereafter jump to involve significant amounts. From the perspective of individuals buying property financed by way of a mortgage bond registered in favour of a lending bank, the duty quickly becomes a material consideration when purchasing a property, considering that the financing of the duty is typically not covered by financing provided by a commercial bank and which therefore may require the duty to be settled by way of existing cash resources available to prospective buyers.

 

Most notably, property transfers on which the transfer duty may be levied are not limited to transfers of immovable property only, but also includes the transfer of shares of so-called “property rich residential companies”, that is the sale of shares in a company where more than 50% of the value of such a company is derived from residential property owned by that company.[2] [3]

 

Various exemption apply in respect of transfers of property where the transfer duty will not be levied.[4] These include where the transfer involves a transaction where the relevant group relief provisions of the Income Tax Act[5] are applied, or where the transfer is subject to VAT (i.e. where the seller sells the property as part of its VAT enterprise).[6]

 

[1] Section 2(1) of the Transfer Duty Act, 40 of 1949

[2] See paragraphs (d) and (e) of “property” in section 1 of the Transfer Duty Act.

[3] Interestingly, the anti-avoidance provision does not extend to shares transferred in companies which own non-residential property.

[4] Section 9 of the Transfer Duty Act.

[5] 58 of 1962

[6] Section 8(15)

 

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)