Instalment Sales Gain Ground

The more difficult it becomes for buyers to raise bond finance, the more the instalment sale option becomes an option to consider.

We are in an interesting situation where interest rates are dropping and could be back to 10% later this year, yet prices remain flat. Selling prices are lower than asking prices and the number of stressed sellers is rising.

Much of this has to do with the difficulty of raising finance.

Hence the instalment sale option is gaining recognition among buyers and sellers.

We have sold many properties this way, the most recent being an R8 million apartment at the Pearls of Umhlanga.

This is certainly not a new concept. It is one that has been around for almost 30 years and was popular in the 1980s when market conditions were similar and building societies only lent as much money as was invested with them.

At least half of Wakefields sales concluded then were done on an instalment basis.

At the crux of these deals is the negotiation between buyer and seller about price, deposit and repayments within some basic parameters that protect both parties.

Importantly, the instalment sale is recorded against the title deed of the property in the deeds office, ensuring that the property cannot be sold to a third party.

The purchase period has to be longer than a year but may not exceed five years, a deposit is needed, and, if there is a bond on the property, monthly instalments must exceed the amount owed by the seller to the bank.

If the buyer reneges on the agreement or falls on hard times and can no longer pay the agreed instalments the seller cancels the contract and the buyer loses the deposit and all payments made.

It is possible that within the five-year period of the instalment agreement the buyer will be able to qualify for a bond. This is so especially with interest rates declining and the buyer having substantial equity in the property.

Instalment sales are also ideal for the stressed seller, who is able to get a large deposit that will help cover debt, while the costs related to owning the property have been removed.

If the seller is bond-free, the monthly repayment will provide the seller with an income.

Sunday Tribune

Posted at 08:04AM Jun 01, 2009 by Editor in Market  |