REAL RIGHT TO

EXTENDDEVELOPMENT

Why?• Developers came up with a unique idea to improve their

cash flow, instead of building a complex in phases they register a Real Right on the undeveloped part of the stand.

• These Real Right get sold off to individual buyers together with a building contract.

• Instead of developers carrying the cost of the development until registration takes place, only the cost of the land is carried.

• The end user (our Client) has to secure a loan for the cost of the Real Right as well as for the building cost.

What is a Real Right?

• The Developer is able to reserve the right to extend the scheme/complex by the addition of further units

• Real Rights are transferable (i.e. from one party to another)

• The Registrar issues a certificate of Real Right to extend to the Developer

Diagram B

Undivided Site

RR 1 Hibiscus lane Real Right 2

Real Right 4 Real Right 5 Real Right 6

Sec 1 Hibiscus lane

Sec 2

123 Melville

Real Right 3

Real Right 7

Diagram A

What is a Real Rights? (Cont.)

o Real Right has a time limit/Expiry date

o Concept plan is submitted to the SG for approval and must be adhered too

o Notarial Deed of Cession of Real Right of Extension is registered

What can SBSA bond?

• Package deals (Real Right + Improvements)• Free standing single units• Maximum of 50% exposure in the complex• Minimum purchase price of R500k

Note: Further advances can only be considered over a Real Right once conversion to sectional title has taken place. (Simultaneous Transaction)

What can SBSA not bond?

• Vacant land (Real Right to extend land only)

• Multi story buildings (Flats)

• Attached units (Semi-detached)

• Large complexes

• Units not complying with the lodged concept plan

Conditions applicable to a Real Right.

• Purchaser to commence construction within 6 months from date of registration of the Real Right

• The builder has 8 months to complete from date of commencement

• Conversion to sectional title within 18 months from registration of Real Right and updated sectional title plans to be submitted to SBSA

• R50k or 20% of total price which ever is the greatest to be retained for conversion from Real Right to Sectional Title (The attorney needs to keep this in a Trust fund)

• Insurance must be in place until unit is enrolled and insured by the body corporate.

Assessors Conditions• Real Right value to be adjusted allowing for common property and or services

not yet installed.• Normal building loan conditions to apply

– NHBRC enrollment– Engineers if required– Occupancy– Letter of satisfaction– Municipal approved plans

• Builders all risk policy• Obtain concept plan/footprint from developer. This will give you an indication

as to the number of Real Rights available• Elevation/shape and size of units to be built• Finishing schedule applicable to complex

Remember: Complex must have at least 2 units to enable Real Right to be formed

What to look out for when processing

• Legal description should be Real Right• Land value on a sectional title complex• Time remaining before Real Right to extent expires• Conversion from Real Right to Sectional Title• Ensure our unit is insured on conversion to

Sectional Title• Attorneys trust fund is made an condition • Complexity of registration as it is different

(Notarial Deed of cession is registered)

Amendments/RegistrationsWhat is required when the attorney informs us

that the property is an Real Right

• Complex to be added to Sectional Title library and to be approved by credit (If not existing)

• Unit/Real Right to be valued• Land/Real Right value to be placed by assessors • New loans to re-grant as new instructions and conditions will

apply• Attorneys to notify us of remaining time period of Real Right

available prior to registration• Could have to go to a different attorney if Bank decides to go

with selected panel

Note: Loan may be withdrawn as it could be for the Real Right (Land only) portion only