C&A Friedlander Attorneys

Understanding the Purchase of a Property in a New Sectional Title Development

For a Conveyancer, the process from the time of taking initial instructions from the Developer to negotiations of the Agreement of Sale with prospective Purchasers and then finally registering the Development, is similar to playing a challenging game of 3D chess while “bobbing and weaving” an opponent in the 12th round of a boxing match.

A new Sectional Title Development is an exciting experience for any prospective Purchaser, irrespective of whether it may be a prospective Purchaser’s first chance to enter the property market or whether a prospective Purchaser is purchasing the Property to increase their Property Portfolio by purchasing an investment property.

Understanding what the process of the registration of a Sectional Title Development entails is key to ensuring that every Purchaser’s expectations are managed from the outset.

The registration of a Sectional Title Development is basically split into four parts and will be explained so that future Sectional title Purchasers can make informed decisions.

Development Feasibility (Part One)

The Developer will identify the site for the prospective Sectional Title Development, contact architects, construction teams, land Surveyors, feasibility report teams, project management teams and financiers or potential partners to enter into the Development as a Joint Venture, thereby splitting the development costs in half or according to the joint venture arrangement.   If all seems possible, the Developer will instruct their Conveyancers’ to furnish them with a conveyancing certificate of the site which will include all the conditions noted against the property and which conditions will require removal in order to proceed with the development.  This conveyancing certificate will accompany a building plan submission to the relevant local authority.  The relevant local authority will furnish an approval with a list of conditions which require compliance with prior to or simultaneously with the registration of the Sectional Title Development. An example of one of those conditions would be that the site comprises of more than one property and in order to proceed with the registration of the development the property needs to be consolidated into one property.

Development Funding (Part Two)

Once the Developer decides that the prospective development is feasible, they will immediately contact probable Financiers.  The Financier could be a South African Bank or Private financial institution.  The chosen Financial institution will have conditions which need to be met prior to being able to fund the Development.  One of the conditions, that are quite common in Sectional Title Developments, is the requirement that the Developer secure a certain number of “pre-sales” prior to the Financial institution furnishing any funding for the Development.  Pre-sales are a percentage or number of secured Unit sales the financial institutions require prior to a certain date.  Should the Developer fail in complying with the pre sales condition before the date required by the financial institution, then the Financial Institution will no longer proceed with any funding for the Development.

Agreement of Sale Negotiation (Part Three)

When signing agreements of sale with the Developer, it is key to read the entire agreement and ensure that as a Purchaser you understand all cost implications relating to your purchase especially when calculating your affordability of your prospective purchase.  A Purchaser is liable not only for transfer costs to the Development Conveyancers, but also bond registration costs to the bond attorneys, occupational interest payable from the occupation date until date of registration, and levy payments due to the Body Corporate.

Please note that most Developments allow a Purchaser to purchase the property without having to pay Transfer Duty.  This is a fundamental concept to understand right from the outset.  Transfer duty is a tax payable to SARS for any purchase of a property over R900 000 (Nine Hundred Thousand Rand) and calculated on a sliding scale.  Most Developers are registered as VAT vendors with SARS and therefore the prospective Purchasers in a development will benefit from not having to pay Transfer duty as the Purchase prices would include VAT.  Not having to pay Transfer duty does not in any way absolve a purchaser from paying Transfer costs, which are costs payable to the Development Conveyancer for the registration of the Transfer.

Another aspect prospective purchasers need to take cognizance of is the occupational interest payable from the Occupation date.  In order for the Developer to start charging Occupational interest a certificate of “Fit for Purpose” needs to be issued.  “Fit for Purpose” means the property is fit for its purpose for which it was built which means it is fit for residential living. The Development Conveyancers will send a notice to all Purchasers advising them of Occupation date and that the issue of the certificate of “Fit for Purpose”.  On Occupation date the Purchasers will become liable for Occupational interest regardless of whether they take actual occupation or not.  Occupation interest is usually calculated on the full purchase price at the prime interest rate, but this will be determined by your contractual agreement.  It is important to understand that the payment of Occupational Interest could be quite substantial.

From the Occupation Date the Purchasers will be able to “snag” their property and report all the snags to the Developer in order for them to repair same.

Therefore, taking all the costs into consideration before signing an agreement of sale would be imperative.

Conveyancing Process (Part Four)

Once an agreement of sale is signed and until the property is actually registered can take three to four years so this is definitely the part where all the strategy comes into play.  Once the signed Agreement of Sale is received in the beginning the appointed Development Conveyancers will call for the deposit and any bond approval acquired. Only once the Development is nearing completion will the appointed Development Conveyancers secure the balance of the Purchase Prices, transfer costs, occupational interest and levies. At this stage they are also collating all the necessary building documentation needed to furnish to every Purchaser and the Bond attorneys instructed by their Mortgage Originator.  The Developer will furnish the Conveyancers with an Occupancy Certificate, Electrical Compliance Certificate, Plumbing Compliance Certificate, Builders registration certificate with the NHBRC (National Housing Building Registration Council), the specific Unit Enrolment certificate with the NHBRC, Approved Sectional Title Plans, Structural Engineers Certificate, Fire compliance certificate and Development Insurance Policy.

Only once all the required documents have been obtained, transfer documents have been signed, bond documents have been signed and the bond attorneys have their proceed to lodge can all the parties prepare the documents to go into the Deeds office.

Once all the deeds are lodged at the Deeds office, they proceed through three levels of examination.  The examination period takes anything from seven to ten days and as soon as the Deeds office is happy with all the documents will the deeds come up on “prep”.  The Conveyancers then have five days to register the deeds.  On the date of registration all the Purchasers become official owners of a Sectional Title Property and the Body Corporate is established.

The Conveyancing Process takes anything from three to six months, but depends on the Cooperation from the Developer, the bond attorneys and the Purchasers.

So before signing anything have a Conveyancer peruse the documentation to enable you to make an informed decision when deciding to buy in a Sectional Title Development property.