Given that few people have the wherewithal to buy a house for cash, and since banks continue to reject almost half of bond applications despite low interest rates, many South Africans have probably wondered whether there is another method to acquire property.
The good news is that there is – it’s called an installment sale, and it presently accounts for around 5% of all home sales.
“Essentially, an instalment sale is just an agreement between a buyer and a seller, formalised in a watertight contract, that the buyer would pay off the purchase price in monthly instalments over a period of time,” explains Meyer de Waal of MDW INC Attorneys.
“This technique of purchasing real estate is made feasible by a lesser-known piece of legislation known as the Alienation of Land Act no. 68 of 1981, which offers robust protection for both the seller and the buyer.”
The Alienation of Land Act (ALA) allows a buyer to acquire a property by paying the seller in more than two installments (in typical bank-financed transactions, there are two installments: the deposit and the final settlement sum) and over a longer period of time. The public notion was that the payback had to be completed within five years, however the parties can agree on any time limit as long as it is longer than one year.
Once a buyer and seller have agreed on a price, payment methods, and terms and conditions, a specific purchase contract is drafted by solicitors that specialise in ALA transactions to ensure the transaction is legal and protects the interests of all parties.
‘A fast and effective option for distressed and motivated sellers.’
If the buyer is in violation and fails to fulfil his or her commitments after being given a 30-day warning period, the seller may cancel the contract, rendering it null and invalid. All payments made by the buyer are forfeited, and the seller retains ownership of the property, providing substantial security for the seller. Furthermore, ALA protects both the seller’s and buyer’s rights and interests in the event that one of the parties becomes bankrupt or dies during the contract period.
