select
|

South Africa's anti-gazumping laws protect more than just the property buyer

Anyone who has been keeping an eye on international property trends over the last few years will likely have come across the term “gazumping” at one point or another.

Originating from the Yiddish word “gezumph”, meaning “overcharge”, the word has become slang for the practice of a property seller rejecting a previously accepted Offer to Purchase in favour of a higher bidder. Its converse is known as “gazundering” - when a buyer walks away from a purchase before transfer takes place.

While gazumping and gazundering are perfectly legal in several countries, including Australia and parts of the UK, they are strictly prohibited under South African law when it pertains to real estate. In South Africa and according to the Alienation of Land Act, all Offers to Purchase and Agreements of Sale have to be reduced to writing and verbal agreements are not legally enforceable. Here, once a valid Offer to Purchase has been signed by all parties, neither buyer nor seller can legally back out of the deal, subject to certain suspensive conditions or by mutual consent. The reason for this, according to Wayne Albutt, the Rawson Property Group’s Western Cape Regional Sales Manager, is not only to protect both buyer and seller, but the health and stability of the property market in general.

“The effects gazumping can have are remarkably far-reaching,” says Albutt. “It’s not just about the uncertainty it creates during the sales process. Not being able to count on a sale going through until the actual transfer takes place is definitely stressful, but it’s the less obvious effects that have the most potential for damage.”

Albutt goes on to explain that in any situation where a bidding-war is possible, competitive natures and impulse reactions can easily inflate prices beyond their traditional market value. “That might not seem like a bad thing on the surface, but if it happens consistently it can introduce instabilities into the market as a whole,” he says. “Property prices in general can be driven up by the artificially-inflated perception of value, peaking at higher highs than they otherwise would. Of course, when the bubble pops and prices drop,” he continues, “they also fall to lower lows.”

The resulting extreme peaks and valleys in property prices may offer opportunities to wealthy and well-informed property investors, but they make things very difficult for your average man on the street.

“Over 70% of buyers in South Africa require financing to purchase a house,” Albutt explains. “When the market is unstable, banks have to protect themselves against the additional risk, and to do that, they get a lot stricter with their overall lending criteria. This criteria will then exclude a much higher proportion of that 70% of buyers, which means fewer people will get the financing they need to actually secure the purchase.”

In cases where applicants do meet the basic criteria for the bond they need, they would still face another hurdle if they had offered above the traditional market value trend in order to “gazump” another buyer. “Banks conduct their own valuations of properties before the bond grant is finalised,” says Albutt, “and if their valuation is too far below the purchase price, they generally won’t grant the loan without a substantial deposit.”

“We currently have around a 53% success rate for bond applicants,” Albutt continues. “If gazumping were legal, we could easily see that dropping dramatically. If fewer buyers needed financing, that might not be an issue, but in South Africa it would have a detrimental effect on sales. That would add to market instability, and continue to fuel the whole vicious cycle.”

Thankfully, here in SA, neither buyer nor seller can back out of a sale after signing on the dotted line. “It might seem severe,” says Albutt, “but it does encourage everyone to think very carefully before signing an Offer to Purchase, and it helps to keep purchase prices grounded in reality, rather than bloated by the gazumping trend.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 22 Jan 2018
      Moving away from the city to a country or coastal town and a slower-paced life is a frequent new-year resolution for South Africans, but thorough research should be done before you break free from the hustle and bustle, because making the wrong move could turn out to be a very expensive mistake, and even more stressful for you and your family than staying in the “big smoke”.
    • 22 Jan 2018
      Cape Town is home to many breathtaking and historic homes, but House Invermark designed in 1969 by South African architect Gilbert Colyn, with inspiration from two modernist icons: the Glass House by Phillip Johnson and Farnsworth House by Ludwig Mies van der Rohe is in a class of its own.
    • 22 Jan 2018
      2017 was a challenging year for the South African property market in general, despite small pockets of thriving activity in areas like the Western Cape. As we head into 2018, Tony Clarke, Managing Director of the Rawson Property Group, casts his eye forward to property trends and market influences that could make their impact felt in the New Year.
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK