SA Affordable Housing July - August 2019 // Issue: 77 | Page 8

ASSOCIATIONS
administered in line with the simple and cost effective
S18(3) deceased estate process.
However, as demonstrated in this case study, some clients
do not qualify as the current value of their government
subsidised houses exceeds the R250 000 threshold, which
has significant and immediate implications for heirs.
"Clearly there is a need to rethink
small estates in South Africa and
how thresholds are determined for
access to subsidised legal services."
THE CASE OF OUR CLIENT
Nomsa is 40 years old and currently unemployed and
approached the TSC for assistance with transferring her
deceased grandmother’s property into her name. Her
grandmother received a government subsidised house
in Khayelitsha in 1997 where she lived until her death
in 2018.
Her grandmother did not have a will, and in line with the
rules of intestate succession, ownership of the property
would pass to Nomsa’s mother, the sole heir of the deceased
estate. However, Nomsa’s mother lives in the Eastern Cape
and would like Nomsa, who lives in the property in
Khayelitsha, to take title of the property and has therefore
renounced her rights to the estate.
According to the City of Cape Town’s 2018 valuation roll,
the 160m 2 property is currently valued at R363 000, a 6.8%
increase from the 2015 valuation of R340 000. While the
property is a valuable asset and source of wealth for our
client, its high value creates two immediate problems
for her.
The first is that the estate cannot be dealt with in terms of
the S18 (3) process as described above and Nomsa therefore
needs the assistance of a legal professional to wind up the
estate.
The second problem is that Nomsa has no access to
subsidised legal assistance.
While Nomsa’s low income makes her eligible for legal
aid, according to the consultant we spoke to, legal aid will
only take on an estate transfer where the heir is a minor, and
even then, it will refer the conveyancing component of the
estate onto pro bono. While pro bono does provide access to
free conveyancing services to lower income households
(excluding disbursements), this only applies where
properties are valued at below R300 000 in Cape Town.
Nomsa therefore needs to fund more than R20 000 in
legal fees including R11 500 for an attorney to wind up her
grandmother’s estate and about R11 000 in conveyancing
fees to transfer the property into her name (see Table 2 for a
breakdown of the costs).
ESTATE VALUE
R340 000
Estate administration costs
• Disbursement costs
R2 500
• Fees (discounted)
R9 000
Conveyancing fees R11 000
TOTAL COST TO CLIENT R22 500 (6.6% of estate value)
Table 2: Approximate legal costs to wind up estate and
transfer property into client's name.
While Nomsa will be ‘asset-rich’ when she takes transfer of
the property, she is currently ‘income-poor’, which means
she cannot afford the legal costs to make the transfer
happen. The value of the property precludes Nomsa from
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JULY - AUGUST 2019
accessing the benefits of the S18(3) provision as well as
subsidised legal assistance through legal aid and pro bono.
Ironically both institutions exist to assist people just like
Nomsa who would like to transact through formal
mechanisms but do not have the financial means to do so.
This case study highlights the story of one client, but we
do not think Nomsa’s situation is unique. Government’s
subsidised housing programme has transferred a
potentially valuable housing asset to more than 1.8 million
poor households. As more subsidy (or RDP) properties
transact on the resale market and as banks and other
lenders increase the provision of mortgage finance in more
affordable segments of the market, prices of RDP houses
are likely to rise, particularly in urban centres like Cape
Town.
The value of housing assets owned by subsidy
beneficiary households is likely to exceed the ‘small
estate’ threshold and the threshold for subsidised legal
services even though their incomes, and ability to afford
such services, may remain unchanged. 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 be able to formalise ownership.
Clearly there is a need to rethink ‘small estates’ in South
Africa and how thresholds are determined for access to
subsidised legal services. At a minimum, if qualifying
thresholds are based on estate values, then these amounts
need to consider property price inflation and property
market performance. As noted, the small estates threshold
was last updated in 2014 from R125 000 to its current
value of R250 000. Had the threshold been updated
annually in line with national house price inflation, it
would currently be about R312 000. If the threshold was
aligned with provincial property price inflation, the
quantum for the Western Cape would be around R356 000.
Nomsa’s case clearly demonstrates that an asset value
threshold can result in income-poor households being
unable to access legal services necessary to realise their
inheritance. Clearly, household income should also be a
factor when determining qualifying criteria.
This issue requires the urgent attention of the
Department of Justice and the legal industry at large. If not
resolved, more deceased estates are likely to remain
unresolved, reducing the reach of formal property market
mechanisms and neutralising the potential value of
housing assets; banks and other lenders cannot lend
against the asset and prices will not increase beyond a
price affordable to cash buyers. 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.
Sources and notes to the article can be found on the
CAHF website: http://housingfinanceafrica.org/projects/
transaction-support-centre/.
www.saaffordablehousing.co.za