In the Merchant of Venice, Shakespeare said that ‘The sins of the father are to be laid upon the children.’ Metaphorically speaking, this is precisely what it happening to new home owners in South Africa. Following a recent ruling by the Supreme Court of Appeal, municipalities will be able to claim debt from property owners dating back as much as thirty years.
Essentially buyers will now be held accountable for historical debt. This means that debt related to the property, which may have accumulated over three decades, will now fall to new owners to pay off. Failure to pay this debt may result in the municipality being able to sell the property in question in order to recoup monetary losses.
What this Means for the SA Property Market
The implications of this ruling may have serious ramifications on the market. The threat of being slapped with hundreds of thousands of rands worth of debt might scare new owners away from the idea of buying property. Even more serious, however, is the fact that banks might see financing home loans as far too risky as a result of the ruling. Fewer sales will impact the South African job market, and indeed the economy.
There are, however, certain experts who believe that the market shouldn’t suffer if the municipalities are fair in their collection of debt. Only an abuse of this newly-appointed power would negatively impact the market in general. After all, the court failed to specify whether municipalities could withhold municipal services until historical debts are satisfied.
Are Property Owners at Risk?
Buyers may be able to protect themselves from incurring historical debt by insisting on a full clearance certificate prior to purchasing a property. However, new property owners who find themselves in great deals of debt may not be able to protect themselves. The only reprieve for new owners would be to contact previous owners, but this is never a certainty based on the fact that they could be dead, living in another country, or simply unavailable.
Another problem with this system is that it doesn’t account for error. Faulty meters, incorrect meter numbers, as well as water and electricity theft all produce valuation errors. This would mean that homeowners would be responsible not only for the debt of others, but possibly incorrect amounts of debt.
Buyers could possibly take out insurance against the possibility of incurring such debt, but will this be acceptable to prospective buyers? If not, the property market might be in trouble.
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