Minister of Justice and Correctional Services
Minister Ronald Lamola, MP
SALU Building
28th Floor
316 Thabo Sehume Street (c/o Thabo Sehume and Francis Baard Streets)
Pretoria

28 April 2020

Your Excellency,

Appeal to raise the amounts for the purposes of Section 18(3) of the Administration of Estates Act, 1965 (Act no. 66 of 1965)

As a group of concerned civil society organisations working closely with some of the most marginalised communities in South Africa, we urgently appeal to you to increase the threshold for “Section 18(3) Estates”. The threshold was last raised to its current level of R250,000 in 2014 (Government Gazette no. 38238) and has therefore not been adjusted to compensate for property price inflation and other market related factors that have served to increase the value of properties. This prejudices heirs, many of whom subsist on low incomes and who, under the present dispensation, suffer the disadvantage of having the meagre estate eroded by the cost of an executor.  In the current economic context that has emerged as a result of the Covid-19 pandemic, not being able to formally regularise their title undermines the economic resilience of precisely those who we would wish to see home ownership support.

At its current level of R250 000, the Estates threshold creates two main problems.  First, the costs associated with transferring a property that falls outside of the threshold are significant.  While heirs who wish to sell inherited properties can use the proceeds of a sale to fund legal fees, those who wish to retain the asset may not have the money available, and will be unable to formalise ownership. This leaves them in a most invidious situation because they are unable to utilise their most valuable asset to its full potential.  Second, the inability to formalise ownership then leaves the property in a state of administrative flux, unable to be formally sold, or used to leverage credit, or be taxed or billed against because officially at least, there is no “owner”. 

An important market segment are the heirs of deceased beneficiaries of government subsidised properties.  While government subsidised houses may be developed at a cost of about R250 000, over time, these have also appreciated.  According to the Centre for Affordable Housing Finance, of the two million government subsidised houses currently on the deeds registry, an estimated 484 233 are valued between R300 000 – R600 000 (with the remainder being valued at below R300 000 each). 

National housing policy, as set out in Breaking New Ground[1] asserts that the Department is committed to “ensuring property can be accessed by all as an asset for wealth creation and empowerment”, and to “supporting the functioning of the entire single residential property market to reduce duality within the sector by breaking the barriers between the first economy residential boom and the second economy slump”.  The R250 000 Estates threshold undermines both of these objectives.

Evidence and experience from numerous ongoing projects across the country which aim at addressing the titling question, including our own (the Transaction Support Centre and the Khaya Lam Land Reform Project), as well as the International Finance Corporation’s (member of the World Bank Group) project in KwaZulu Natal, confirms that the R250 000 Estates threshold undermines national policy objectives and leads to low value properties being transacted outside the formal system.   Each project has highlighted in its work that a revision of the exemption threshold can have a positive impact on formal registration of transactions.

Title deeds are important for empowerment and to restore dignity to those who were denied the right to own property under the apartheid regime. Title deeds are not only important for creating the environment where an entrepreneurial spirit can thrive but also for securing the ability to create wealth for future generations – a key objective also of the state’s national housing programme. The collateral secured through a title deed provides an important tool to leverage working capital and finance that could potentially be used for any beneficial purpose.  And, as noted, title confers a level of resilience to economic shocks such as is being currently experienced in South Africa.

Section 18(3) gives the authority to the Minister of Justice to publish a notice in the Gazette, setting out the threshold.  We therefore request you to publish a notice in the Gazette, setting the new threshold at R600 000, for the following reasons:

• The current threshold of R250 000 was set in 2014, which given house price inflation in this segment of the market, would be equivalent to R411 218 today.
• Government subsidised houses on the deeds registry have appreciated in value.  While 73% are worth less than R300 000, a further 24% are valued between R300 000 – R600 000.  By increasing the threshold to R600 000, it will be supportive to the policy objectives in support of creating housing assets for beneficiaries of government subsidised housing.
• Changing the threshold on this basis will incentivise existing heirs to formalise their ownership status, and will improve the overall performance of South Africa’s residential property market for low-income earners.

We further request that you review the Estates threshold annually in line with the property price inflation evident in low value properties.

This issue requires the urgent attention of the Department of Justice. If this matter is not addressed promptly, more deceased estates are likely to remain unresolved, reducing the reach of formal property market mechanisms and neutralising the potential value of housing assets. Moreover, banks and other lenders cannot lend against the asset and prices will not increase beyond a price affordable to cash buyers.  This will have a negative effect on investment levels in neighbourhoods where such investment is most needed – and this, will undermine municipal capacity to adequately service those neighbourhoods.  Beyond this, the impact on heirs is significant. They must either find a way to pay for legal services they cannot afford or forego formal registration of inherited property.

We look forward to your positive response.

Sincerely,

Kecia Rust
Executive Director
Centre for Affordable Housing Finance in Africa

Illana Melzer
Director
71point4

 Jasson Urbach
Director
Khaya Lam Land Reform Project

This letter and its motivation are further supported by the following organisations who also work regularly in this market segment:

Erica Emdon
Director
The Public Interest Practice 

Karl Hoffmann;
Director

HSG Attorneys Incorporated

Mfundo Mabaso
Growth Head – Home Finance

First National Bank

Footnote:

[1] Breaking New Ground: A Comprehensive Plan for the Development of Integrated Sustainable Human Settlements. Accessed from http://www.dhs.gov.za/sites/default/files/documents/26082014_BNG2004.pdf on 9 April 2020.