Legal & General

Some idiosyncracies of the South African Property Market.

A simple guide to some of the facts, figures, and terminology of the South African Property market, specifically aimed at the Commercial and Industrial sector.

Realtors, Real Estate Agents, Estate Agents, dealing with any aspect of Commercial and Industrial Property are more commonly known as ‘Brokers’.

Commercial commonly refers to Offices.
Industrial refers to Factories, Warehouses and the like.
Retail refers to shops.

Mortgages are always referred to as Bonds. Hence – Mortgage Rate/s would be Bond Rate/s.

Measurements in South Africa are metric. Centimetres, Metres, Kilometres. Square Metres, Hectares. Go to the ‘CONVERSION TABLE’ tab above for a common conversion table.

Legal and Financial Stuff

Leasing Property.

Rental rates are normally quoted in Rands per Square Metre exclusive of VAT (Value Added Tax). VAT is charged and payable on rentals at the ruling rate, currently 14%
The lease period may vary. The norm is three or five years with an annual escalation and a similar period renewal option.
Whilst in theory a verbal lease can be upheld in South African law in practice this in never the case. The lease contract is reduced to writing and clearly defines the terms, conditions and responsibilities of each party. Whilst most Brokers have their own standard documentation some Landlords, notably the Institutions and Property Fund managers prefer to use their in house documentation.
Commission is payable by the Landlord to the Broker who secured the tenant.

Purchasing Property.

An Agreement of Purchase and Sale has to be in writing.
To be a valid and binding contract it must include:
• The name of the Purchaser
• The name of the Seller
• The description of the Property
• The price
• And be signed by both parties.
If there are no suspensive conditions then the Agreement is a legal and binding contract and can be upheld in law. Unlike some foreign markets, once signed by both parties there is no opportunity for either party to opt out of the sale or change any of the material conditions such as the price, which is then fixed. NB ‘Gazumping’ is outside of South African legal practice.

It is normal to include a number of other conditions, including but not limited to:
• How the Purchase is to be financed
• Date of possession / occupation
• Electrical and Entomologists reports and the financing of any remedial works required
• A ‘voetstoets’ clause, peculiar to South Africa, which simply means ‘as is / as it stands’
• Nomination of the transferring Attorney. Normally nominated by the Seller and paid for by the Purchaser. If the Agreement is not drawn and prepared by the Broker the Seller’s Attorney will do so. Again, normally paid for by the Purchaser.
• Responsibility for payment of commission. Normally paid by the Seller to the Broker
• Any other suspensive conditions eg ‘Due Diligence’

Financing a Property Purchase.

Bond (or Mortgage Originators) are rarely used to assist in financing a Commercial or Industrial property purchase.
If you are hoping to raise finance towards the purchase price, your Bond will be obtained through one of the recognised commercial banks or financial institutions. Application in the first instance would be made by you direct or by the Property Broker, on your behalf.
As a ‘ball park’ guide the banks will lend no more than +/- 65% of their valuation of the property.
As the Banks tend to be ultra conservative, in practice, this is often less than the real market value and /or the purchase price of the property.
The loan period will be for a maximum of ten years. Interests rates depend upon their risk assessment of both the property and you. Two or three percent over prime will probably be the Bank’s staring point.