Rands purchases pose risks for sellers, tie up capital for buyers
AS WITH most things, there are pros and cons, and cash purchases are no exception.
“The pros are that there is no mortgage debt to repay – only the rates, taxes and maintenance charges. Any income received from the property is free to be utilised,” says Andrew Heiberg, director at law firm Cliffe Dekker Hofmeyr Inc’s Real Estate practice in Cape Town.
Furthermore, investment in bricks and mortar is more reliable than investment in markets.
The cons are that a purchaser’s cash is tied up in one asset which is not flexible or immediately available to use and invest in other assets or opportunities.
“Capital growth is (also) dependent on the property market – supply and demand and the area.”
A risk for sellers is that cash purchasers sometimes cannot come up with the money, even after the agreement has been signed, warns Soukop CEO Dina Soukop.
“While it doesn’t make much difference to the seller whether it is a cash or bond sale, it is important that it is a protected cash sale.
“Every so often there are cases where the cash purchaser doesn’t put down a deposit, and then when the lawyer asks for the payment, they can’t come up with the money,” she says.
“The sale then falls through, sometimes weeks after the agreement has been signed, and the seller has to put their property on the market all over again.”