Real Estate Investor Magazine South Africa February 2014 | Page 40

MANAGING

BY ALEXANDRA BURGER

Luxury Property Investment
Straight from the director’s mouth

F

or many years I’ve acted as a director or a
trustee on entities owning a wide variety
of luxury assets from bungalows to wine
farms and even yachts and, what would largely
be expected to be a boring or administrative job,
has actually been far more complicated and time
consuming and, even on occasions, quite hairraising. The client who often lives abroad has
bought this asset for personal enjoyment, as an
investment or sometimes as a business but, in every
case, acting as the director (or trustee) endows you
with significant fiduciary responsibility. In my
experience, a legal or accounting background is
useful but, in time, you may find yourself having to
become an expert in moving valuable art, managing
neighbours disputes and even staff. Sometimes
common sense, a practical nature and a welldeveloped sense of humour will go along way.
The primary issue to face is what has your client
bought and what sort of due diligence should be
done on the asset. A Deeds Office search is an
obvious place to start, as one needs to check for
usufructs and other restrictions on the property
including building restrictions. Some properties
may have land rights issues and even squatter issues
and those are best avoided. Its also recommended
in certain cases to obtain a structural engineering
report for older and sometimes new buildings too.
There are electrical and beetle and bug certificates
but these are only as good as the company providing
them and note there are quite a large variety of
bug infestations possible while some companies
only test for a limited number and may miss the
particular brand of pest. It’s often a good idea to
engage a different law firm from the one affecting
the transfer to assist in an extensive due diligence
process for more complicated property acquisitions.
There are situations where one has to build a team
to manage the asset in the short and sometimes
even the long term. Directors’ responsibilities are
codified but it is also clear that as a director one
is entitled to engage the services of other suitably
experienced professionals and rely on their advice.
Note the legal advisors, auditors and accountants
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February 2014 SA Real Estate Investor

should have a clear mandate so that nothing falls
between the cracks. One cannot entirely rely on the
professionals at all times and there will be situations
when it’s your responsibility to call for expert advice
in, for example, a tax or foreign exchange query.
One has to be vigilant and check for inconsistencies
in minutes of meetings drafted and even surprising
things such as qualified accounts.
The first site visit to the property is vital. Having
a working knowledge of the area is naturally an
advantage and it’s also not a bad idea to visit the
property in the day and also at night to get a good
feeling for the area. If one is looking at a farm, for
example, one needs to note the infrastructure like
the buildings but also the fencing, security and
water availability including boreholes. Water is
vital for any farming activities so the boreholes
and dams should be registered to know how
much water one can legally extract. The property
should have a certificate advising the water
rights, source and quantity and the penalties for
non-compliance are severe.
Buying a ready-established property is entirely
different to a new-build or a farm, which still
requires the crops, landscaping or even the
animals. It’s definitely advisable to hire a building
manager, a quantity surveyor, architects and
possibly interior decorators, all with your client’s
approval. Building is a high risk activity and
also very time intensive so one has to ensure you
have a good team