Is co-ownership the way to go?

Property ownership is no small feat. It is one of the most reliable forms of investment and one of the biggest items that most people have on their financial “to-do” lists. Unfortunately, it is not always an easily achievable goal. Property ownership has always been a costly endeavour, and in recent years the age of first-time homeowners has been steadily increasing as younger professionals reach find their financial footing later than in previous years, making the one option that helps property buyers side-step the financial burden is co-ownership. But how beneficial is this path really?

Co-ownership is when one or more party jointly own a single property. In essence, the owners share legal ownership without having to divide the property into physical portions for their exclusive use. It is thus commonly referred to as co-ownership in undivided shares.

It is possible to agree that owners acquire the property in different shares; for instance, one person owns 70% and the other 30% of the property. The different shares can then also be recorded and registered in the title deeds by the Deeds Office.

On paper, it’s a great idea. For starters, the burden of bond repayments and maintenance costs are lessened. However, there can be problems and although not every friendship or relationship is destined to disintegrate, there does often come a time when one of the parties involved wants to sell up and move on to bigger and better things.

If ownership is given to one or more purchasers, without stipulating in what shares they acquire the property, it is legally presumed that they acquired the property in equal shares.

The risks, the benefits and the obligations that flow from the property are shared in proportion to each person’s share of ownership in the property. For instance, one of the co-owners fails to contribute his share of the finances as initially agreed, resulting in creditors such as the bank or Body Corporate taking action to recover the shortfall.

If two people own property together in undivided shares, it is advisable to enter into an agreement that will regulate their rights and obligations if they should decide to go their own separate ways.

The practical difficulties that flow from the rights and duties of co-ownership are captured by the expression communio est mater rixarum, or “co-ownership is the mother of disputes”. It is therefore important that certain remedies be made available for when the agreement the co-owners entered into does not help them solve arising disputes.

The co-ownership agreement should address the following issues:

  • In what proportion will the property be shared?
  • Who has the sole right to occupy the property?
  • Who will contribute what initial payments to acquire the property?
  • Who will contribute what amounts to the ongoing future costs and finances?
  • How will the profits or losses be split, should the property or a share be sold?
  • The sale of one party’s share must be restricted or regulated.
  • The right to draw funds out of the access bond must be regulated.
  • A breakdown of the relationship between the parties.
  • What happens in the occurrence of death or incapacity of one of the parties?
  • Dispute resolution options to be relied on before issuing summons.
  • The guidelines for the termination of the agreement.

Co-ownership can be a wonderful way in which to realise your dreams of homeownership even when your financial situation does not yet fully allow it. But it is vital that you obtain the necessary guidance and advice when entering into such a relationship to ensure a long-term, mutually beneficial experience.

This article is a general information sheet and should not be used or relied upon as 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 current state of the rental market

While restaurants, shopping malls and beaches may look somewhat similar to what they did before the pandemic, nevermind lockdown regulations and social distancing protocols, the real estate rental market has not recovered quite as well as the consumer market.

Studies conducted by the TPN Credit Bureau have indicated that, at the start of the hard lockdown of 2020, only half of short-term credit accounts were paid in “current” terms. Already in the third quarter of 2020, the repayment of credit accounts had increased to 70%. The rental market has not been so fortunate in its recovery.

Due to job losses and increasing financial insecurity, the prospect of defaulting on rental payments has become an ominously looming possibility for many tenants. However, TPN’s research has indicated that the number of tenants more than three months in arrears is steadily declining, thanks in part to the rental relief that was provided by numerous landlords when tenants’ financial situations were in dire need of every cent that could be spared. While tenant payment has increased greatly since the third quarter of 2020, it seems as if it was an improvement that levelled out in 2021.

When looking at the section of the market that is still most affected by non-payment, it is unfortunate that it proves to be properties with a rent of under R7 000, which is commonly considered the more affordable market. With the under-R3 000 market, only 65.73% of tenants are currently in good standing according to statistics. This is a clear indication that the tenants struggling the most with rent are also those who have felt the impact most due to lesser wealth.

Research makes it clear that there are numerous tenants who are more than six months in arrears still occupying properties, placing landlords in an increasingly difficult predicament. The unfortunate reality is that where mediation was previously possible, the employment circumstances of many tenants are unlikely to change soon, making mediation a redundant process. The last resort left to landlords thus becomes a court-ordered eviction. However, evicting long-term delinquent tenants who have invertedly become squatters is a costly and drawn-out process. Once a landlord’s legal counsel has advised them on the avenues of legal action available to them within eviction law and the state of disaster regulations, the difficulty of securing a court date makes a court-ordered eviction a problematic solution, to say the least.

When it comes to squatting tenants and evictions, landlords also have to keep in mind that they may not hinder a tenant’s ability to reasonably occupy the property, even if they are in arrears on rent. The law prohibits landlords from activities such as removing doors, cutting off electricity, or changing the locks of the doors – activities certain landlords have previously resorted to in hopes of making the occupation of the property so unbearable that the squatting tenants would leave on their own.

The fear of non-payment has become one of the greatest concerns for landlords in general, leaving many landlords preferring a temporarily vacant property over risking tenants who will end up in arrears and the possibility of squatting. As proof of this, the statistics show that while the national vacancy rate has stabilised at 13.5% in the second quarter of 2021, areas such as Sandton still show a vacancy rate of above 20%.

Hopefully the rental market will mirror the improved activity and regained sense of normalcy of the consumer market and continue to stabilise as 2021 heads into its final quarter. One silver lining around this cloud is that you are not alone. Whether you have further questions regarding tenants falling into arrears or want advice regarding your vacant rental property, our property experts are here to help you on your journey.

This article is a general information sheet and should not be used or relied upon as 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)