Purchase and ownership of vacant land

Location

The area in which a vacant stand is located will of course need to be considered when planning to purchase, as the local municipality has by-laws which regulate what is allowed in certain areas. It is wise to research the relevant by-laws to determine if these impact on the intended building or use of the property.

A potential purchaser should also see if there are any conditions in the title deed which may restrict or regulate how their property is developed. These restrictions are normally in place to protect the aesthetics and nature of the area.  

This is also true of a large number of gated estates which have their own rules. For instance, the homeowners association might only allow a certain style of house to suit the rest of the development.

Loans for the purchase of vacant land

Financial institutions are less likely to offer 100% financing for buying vacant land as it is considered a riskier investment, however, this does not mean that it is not possible. This size of the property and the area in which it is located will impact the decision on whether to finance the purchase.

In addition, if a larger deposit is payable, approval of the bond will also be more likely. It is also wise to have additional funds available should unforeseen expenses arise.

Costs and process

While it is often considered to be cheaper to buy land and build a house, one must be mindful and take all costs into consideration. Architectural and building fees are key costs that should be examined as these need to fit your overall budget. It is common for building costs to exceed the initial plan if not carefully considered, monitored and agreed upon by all parties beforehand.

That said, transfer duty is one area where buying vacant property can result in a saving. Currently, properties with a selling price of less than R900k are exempt from transfer duty. It is also possible to buy land and not build on it immediately, which means one can potentially wait until sufficient capital has been generated to begin construction.

When it comes to the transfer process though, all relevant steps remain unchanged compared to the transfer of a property with an existing building. All relevant supporting documents and clearance certificates are still to be obtained.

Services and maintenance

The vacant erf will incur lower service costs as the municipal rates are charged on its estimated value. Your charges on water and sanitation will be relatively low as usage is also minimal.

Whilst undeveloped land has a lower overall value, there is also no need to worry about any defects or immediate maintenance. However, city councils are strict regarding the upkeep of vacant stands to ensure a clean and healthy area. For example, this may include regularly clearing overgrown vegetation.

Whilst there are certain risks that accompany the purchase of vacant land, doing a bit of research might be the difference between purchasing a potential asset or liability. The best course of action will be to approach a real estate agent who knows the area where the vacant stand is located and can provide you with valuable insight and advice.

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Written by Wessel de Kock

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