fbpx
 

The Road to Property Development in South Africa

Hammond Pole Attorneys > Hammond Pole Blog  > The Road to Property Development in South Africa

The Road to Property Development in South Africa

Property development in South Africa can be a lucrative and profitable business for the aspiring and able entrepreneur.

However, given our rigid legislation, municipal by laws and compliance framework, property development can also be a costly and longwinded exercise if not planned appropriately.

 

THE LAND
A suitable piece of land must first be identified and acquired before embarking on a proclamation. This is an essential pre-development requirement, which is a process of obtaining council consent and publicly declaring the developer’s intention to commence with the project.

At the commencement of the project, a developer would need to assemble a team of professionals including a town planner, architect, land surveyor, civil engineer, traffic engineer, electrical engineer, environmental specialist and an experienced conveyancer.

In addition to the professional fees budgeted for the professional team, the initial acquisition of land substantial enough to develop is one of the first of the developer’s financial hurdles. How the developer owns the land and finances its acquisition determines what rights he has in so far as further encumbering and disposing of it is concerned.

It must be said that title ownership of the land is vital for the successful proclamation of the land. Once the developer owns the land, development finance can be available and is a common method of financing the project for developers.

Typically, development finance would involve securities in place over the land or portions of it. As alluded to above, unless the developer owns the land himself, financing the project through development finance can be challenging.

Unless the developer has sufficient reserves to self-fund the project, finance can be problematic given that the developer will only see the flow of proceeds from sales at a much later date.

It is therefore advisable that would-be developers consider the costings and cash flows carefully.

Financial planning aside – subdivision, consolidation and pre-proclamation of the land is the first step in land development.

 

SUBDIVISION, CONSOLIDATION AND PROCLAMATION
A fundamental requirement of land in South Africa is that it cannot exist unless it is plotted on a diagram and registered at the deed’s office. This creates certainty as to the owner of the land and its precise geographical location. A Developer would therefore need to consult with a land surveyor, town planner and an architect to prepare diagrams of the development land.

On considering a diagram, the developer must consider whether the land identified for development is to be subdivided into smaller erven or whether two or more pieces of land are to be consolidated into a bigger piece of land. Before being registered at the deeds office, the developer would need to make an application for subdivision or consolidation and register such application at the deeds office.

The diagram of the land must then be submitted to the office of the Surveyor General for approval whereafter the new piece of land or the subdivided portions may be registered at the deeds office.

 

TOWNSHIP APPROVAL
Once the land for development has been fully acquired and registered at the deeds office, the land must be registered as a township.

The formation of a township means that engineering and municipal services must be considered and recorded on a General Plan which must ultimately be approved by the surveyor general.

In addition to being plotted on a diagram and approved by the surveyor general, municipal approval must be obtained in accordance with various applicable legislation such as The Spatial Planning and Land Use Management Act 16 of 2013 (SPLUMA) and the National Roads and Ribbon Development Act 22 of 1944.

Municipal approval will also involve several council departments overseeing water, sanitation, engineering requirements, roads and drainage, refuse removal, emergency services and an environmental impact.

Once the initial planning for the township has been reduced to a set of building plans and diagrams, council approval can be obtained.

An experienced and reputable Town Planner will assist the developer in submitting council applications and obtaining necessary approvals for the development.

Council approval is typically reduced to a set of conditions of title commonly referred to as the Conditions of Establishment. These conditions are ultimately published in the Government Gazette and a township register is opened at the deeds office.

The issued Conditions of Establishment will apply to the land and the individual erven to be sold as part of the development. These conditions will follow through and will reflect in the title deed registered for each erf.

Conditions typically regulate how the land is to be used and what is restricted in terms of further building etc. The conditions also reflect mandatory servitudes in favour of the council in respect of public roads and access to services such as power lines and sewerage lines. This of course is also reflected in the general plan approved by the surveyor general and registered at the deeds office.

 

REGISTRATION OF THE GENERAL PLAN AND OPENING OF A TOWNSHIP REGISTER
In order to open a township register, several documents are submitted to the deeds office and an application is made for the opening of the township and the registration of a general plan. The deeds office will only register a township once relevant council approvals are obtained. Certificates reflecting such approval must be submitted with the application to the deeds office.

This application and registration are the first steps in proclamation of the land. It is also the most challenging given the administrative difficulties in dealing with the council and their internal departments. It is time-consuming and expensive.

Final proclamation takes place once the council is satisfied that the conditions of establishment have been complied with and provision has been made for the supply of basic services to the township.

Any aspiring developer should therefore consider that proclamation and municipal approvals are a longwinded and costly exercise which must be done correctly failing which the developer exposes himself to massive risks and the failure of the project.

The task is however not impossible and with the assistance of a carefully assembled team of experts, initial administrative hurdles can be overcome.

 

ESSENTIAL BULK SERVICES
It goes without saying however, that financial planning for a successful development includes not only the costs associated with the team of professionals but also the costs of installing engineering services such as water, sewerage and electricity as well as further costs of contributions to council for the supply of services once the essential foundations have been installed.

One of the biggest expenses in a development is the installation of electrical and water supply services. These are external services commonly referred to as bulk services.

This is a major requirement for developments and is often a basic requirement for mortgagees before they will extend home loans to end users.

Of late, some developers are moving towards an “off-grid” solution meaning that units within the development scheme are self-sufficient using solar and borehole water. Although this is a “green” solution it is often a requirement by council and by mortgagees that a basic connection to government services is required. This is a widely debated topic especially given the power supply challenges in South Africa. However eco-friendly solutions appear to be an attractive factor for property owners.

 

SALES AND MARKETING
Post-proclamation of the land then involves the marketing and sale of individual units within the development.

Sales of erven to private end users will then involve the preparation of a sales agreement and the transfer of the land in the normal course. Individual transfers involve separate applications to the deeds office together with municipal clearances and further registration of mortgage bonds in the usual conveyancing process.

Developers who align themselves with experienced conveyancers who also represent the major banks are at an advantage as the registration of residential units and mortgage bonds can be a cumbersome administrative process. Working with a conveyancer who represents the banks means that the conveyancer is able to assist the developer in engaging with the banks to prepare the documents and comply with the banks strict requirements in approving and grating bonds to end users.

Whilst land development can be complicated and riddled with administrative red tape, the rewards can be massive.

Although a challenging and costly exercise, land development in South Africa is essential for the growth of the property market and the creation of jobs. Although the property market is a volatile sector in our economy, it is a positive sign that investors are still prepared to take risks and new developments are still being registered.

For more information, please contact Hammond Pole Attorneys: NeilM@hammondpole.co.za

No Comments

Sorry, the comment form is closed at this time.

google amca seni sikerrrrr