installment sale comeback
18 August 2008
And RealNet property group CEO Tjaart van der Walt says this method of purchase, widely used back in the seventies, does offer solutions in tough times, particularly for first-time homebuyers. “The basis of an instalment sale transaction is an agreement between buyer and seller in terms of which the buyer agrees to acquire the property in more than two instalments, over a period of more than a year and less than five years. It is possible that no deposit will be required and of course it means that the buyer does not immediately need a home loan.
“Only at the end of the instalment period will the buyer need to close the transaction via a new home loan or cash and only then will transfer duty be payable.” However there are some potential problems, Van der Walt cautions.
Firstly, if the buyer defaults on his monthly payments or cannot close at the end of the instalment period all payments made will be lost and the property reverts to the seller.
Secondly, it is vital that the instalment sale agreement is properly recorded in the Deeds Office by a conveyancer as this provides protection for the buyer should the seller become insolvent before the final instalment has been paid. “Should that happen, the buyer will be able to take transfer of the property by paying the outstanding balance of the purchase price or the total sequestration costs or the amount owing on any existing mortgage bond or improvements to the property, whichever is the greater. “And if he cannot raise this money in 30 days, the property will fall into the insolvent estate and the buyer will at least become a preferred claimant ranking immediately after the bank or lender of any bonds on the property.”
Having the sale recorded will also protect the buyer if the property should be attached by court order before transfer is passed. If it is not recorded, the buyer stands to lose the property and all instalments already paid as well as the costs of upkeep and any improvements that may have been made. “Notwithstanding these considerations, though, instalment sales are seriously worth considering in the current market and offer advantages for sellers as well as cash-strapped buyers.
“These include the possibility of a fast sale and quick registration of the transaction as there is no transfer process, the relief of having money coming in to meet the repayments on an existing home loan and the benefit of having buyers living in the home and looking after it as their own rather than having to deal with tenants.”