Property Ownership Options

When considering buying property such as  a unit, complex, or free standing house in South Africa , the buyer must be aware of the various options available to them in terms of ownership. The most commonly used form of ownership in South Africa is freehold, though sectional title, leasehold and share block are other options available.

Other main factors  in deciding the type of name your register your property in, are security (protection of the property as an investment) and tax implications. The most popular choices of ownership available are:

• Individual or freehold ownership
• Joint ownership - two or more owners in partnership. Married or unmarried
• Close corporations
• Companies
• Trusts

Individual or Freehold Ownership

In terms of freehold or individual ownership, the buyer can acquire full ownership of the property, and as a result are free to do with it as they please, as long as their plans do not interfere with municipal regulations. This will allow the owner to sell the property at any desired time, rent it out, or paint and alter as they like. Freehold ownership is the simplest form of property ownership, as it allows the owner full responsibility of the property. As the owner of the property, responsibilities include the paying of rates for services such as water, sewerage, electricity and refuse removal, and the maintenance of grass verges etc. When purchasing freehold property, the buyer is given the title of the property, and new ownership is registered at the Deeds Office, which records ownership and other rights. relating to immovable property.

Benefits of Individual or Freehold Ownership

• It is the safest form of ownership.
• The registration process is relatively straight forward.
• Transfer duty is less than some of the other types of ownership.
• Buying property in partnership with someone else can provide the opportunity to get into the property market that you may not be able to afford on your own.

Disadvantages of Individual Ownership

• Legal action by creditors of any of the owners can force owners to sell the property to cover the debts of one of the parties. (up to the value of his/her share in the property.)
• Estate duty is high, 25% for estates in excess value of R1 million.
• Capital Gains tax is payable on the sale of a property.

Ownership in the name of a Trust

A trust can be established by contract over a short period of time, usually less than one month. Parties involved in a trust are the founder, who formed the trust, and the trustees. The founder places the assets under the administration of trustees, and the trustees look after the assets for the beneficiaries. There are  a number of different forms of trusts available such as business or family, however, property is often registered in the name of a family trust. There are strict regulations which prevent people from moving their assets into a trust before they file for bankruptcy.

Benefits of Purchasing property in a Trust

• Property bought in a trust is separated from the personal estates of the trust holders, and as a result of this, there will be no tax implications if one of the beneficiaries should pass away.
• Personal creditors (those owed money by individual members of the trust) cannot take action against trust property.
• Should any of the beneficiaries pass away, the trust will remain unaffected, and no estate duty will be payable.
• Tax is lower than that paid by companies
• A trust can be set up by anybody, and a trust has a legal personality
• A trust is not affected by a divorce

Ownership Registered in the name of a Close Corporation, Company or Informal Body

• Informal bodies such as Churches and associations may own property in South Africa
• Close Corporations are entitled to buy property on condition that Section 40 of the Close Corporations Act is not violated. This refers to the conditions of financing of the purchase. Capital Gains tax is payable. Close corporations are formed by between one and ten people, with each member's interest registered as a percentage holding. There are no shares involved.
• Companies are also permitted to purchase property, on condition that Section 38 of the Companies Act  is not contravened. This prevents companies from purchasing their own shares

Benefits of Ownership in name of a Company or Close Corporation

• A company or closed corporation is a separate legal entity and as a result is not responsible or the debts of its shareholders.
• No transfer duty is payable
• Property cannot be transferred to heirs on the death or resignation of shareholders.

Disadvantages of company ownership

• As the property is expected to generate income, taxes paid are higher than those paid by individuals.
• Capital gains tax is applicable when the property is sold.
• The running of a company is a rather complex process.

Other forms of ownership

Property can be bought in the name of a partnership but due to many disadvantages this form of ownership is not the most popular. The main disadvantage is that the property forms part of the personal estate of all the partners and as a result of this, is exposed to legal action by the creditors of individual partners.