Almost 270 people shelled out between R700k and R1m to buy land in the Highland Gate Golf and Trout Estate outside Dullstroom in Mpumalanga, hoping probably, to cash in on a valuable investment having enjoyed the privileges of owning a weekend getaway and holiday home for several years.Their hopes were partly dashed when the development was put into provisional liquidation late last year and, despite efforts from one of the trustees, SBT, to find a buyer, they have been unable to do so. So the property went on auction.
In Phase One of this development, there are 455 properties for sale and 267 of them have already been sold. Some might have been cash sales – there are some very wealthy people in South Africa and elsewhere – and other were probably bonded by banks who were keen, at least until August last year, to lend money to anyone.
I don't have any exact figures on how many of these properties are bonded and how many have been paid for but, one way or another, the developers raised a huge amount of money. If we take R850k as the average price of a stand and multiply that by the number sold, we have R227m to play with.
That money has probably all gone by now, hence the provisional liquidation, the final liquidation and the auction.
How many bids do you think the Alliance Group received?
Not a single one – despite starting the bidding at R50m and dropping it to R40m.
No-one was interested.
What puzzles me is if the banks that were prepared to bond the properties they must, surely, have done some kind of due diligence on the developers and ascertained, at the very least, that they had the funds to complete the development.
The funds to do what they, as developers, promised the buyers they would deliver.
Evidently not. Evidently the banks can't be bothered to check the credentials of the developers or to do anything else to protect their bondholders either.
Banks seem to believe that by having the simple security of an indebted individual who owns a piece of land, they have all the protection they need.
Well, guess what, that's exactly what all those bankrupt banks in America and Britain thought as well.
South African banks adopt this cavalier attitude that if the development fails, why should they care because they hold the suckers who borrowed their money over a barrel and will take every last cent from them if they don't pay.
The banks sit back, like Pontius Pilate, and wash their hands of all responsibility if a development crashes. How do they do this? By hiding behind that well-worn, often one-sided, clause of "Let the buyer beware".
There are many similar cases. For instance, a woman, who I'll call Bongile, bought a property in a security estate in 1997 and today, 11 years later, she is still just one of two properties in that estate.
The developer went bust soon after she'd bought the land and built her cluster house. Preliminary investigations cannot find any record of the property, known then as Brookwood Park. We cannot, yet find a trace of the property proclamation, the zoning or the planning permission, or anything else.
The developer, whose name is known to us, scuttled overseas to protect himself from his creditors when he ran out of money. And, Bongile was stuck in an unfinished and bankrupt estate and she owned a small section of it.
Things were so bad for her that she had to connect her house to the electrical power outlet intended for use by the builders working on the estate. To this day, her monthly electricity bill is addressed to the developer.
To the best of my knowledge, properties must be proclaimed and, in order to get that proclamation, must have all the services in place. Well, evidently, that wasn't the case for this Northriding development. Like Highland Gate, the property was auctioned (around 1999) to a non-resident from Botswana, who has been promising to go ahead with the development since he bought the land.
Bongile wants to know if she has any recourse against the bank that granted her the bond, against the new owner of the property or, possibly, against the original developer.
I'm still in the process of mustering all the facts and figures relating to this deal and, at some time in the future, will provide a thorough report on this development.
But it does prompt the question: When a property developer falls over and cannot complete the development, what recourse is there for a buyer – or a group of buyers? What certainty do they have that the property they bought will be developed in the way that it was originally intended to be?
Take Highland Gate. According to many websites this development is meant to be spectacular. Even Pam Golding lauds it, proclaiming: "Highland Gate allows its homeowner's access to magnificent and abundant trout fishing opportunities, in natural weirs, streams and dams that punctuate the estate.
Now, that's all gone along with many other dreams – like well-stocked trout dams, the 18-hole golf course (which was supposed to open in May last year), the beautifully appointed wellness centre and so forth.
Put yourself in the position of the buyers at Highland Gate. You're unable to get any money back from the developers because they're in liquidation; there's no new developer prepared to finish complete the estate; you haven't got the facilities you thought you were getting; and you have no guarantee that a new developer will fulfill your dream.
And then sellers (and banks) smirk at you and say: "Let the buyer beware".
That's rubbish.
In fact, I think that there should now be some onus on the banks that are funding the development – admittedly through bond finance on your behalf – to ascertain that the developer has the wherewithal to complete the development as promised.
This nonsense of announcing a new development, creating a fanfare of interest through clever marketing and pretty pictures, selling stands to people who buy into the developer's dream before it goes into liquidation, must be stopped. It must be treated as the fraud it is and the perpetrators sent to jail.
Our history books are littered with spectacular failures – all in a similar vein. Glen Anil, Bester Homes, Masterbond . . . the list just goes on and on. It's always the same principle: start the development and allow sales to generate the cash needed to complete the development.
If sales fail, you, as the developer can walk away, rub the dust and dirt off the palms of your hands, and find a new bunch of suckers to buy into another property somewhere else.
We've got the Financial Intelligence Centre Act (FICA) that so stringently governs the lending of money to individuals. Surely then, its time to have a clause in FICA for developers. A clause that provides some guarantees that ensure the developer can actually complete the development.
I think that Bongile of Brookwood Park and the 267 owners of stands (or homes) in Highland Gate should now be given some meaningful recourse. They should able to recoup their money (with interest and costs) from the developer and, failing that, from the bank that lent them the money in the first place.
In my view, banks and financial institutions must share some of the responsibility for the development and they must make sure that such developments are sound.
After all the banks claim to be experts when it comes to property.
So let them put their money where there loud mouths are. And let them work to outlaw those fly-by-night developers who just keep reappearing in the property market.
*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and don't pretend to be facts or advice. Contact him at paddy@neomail.co.za.
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I'm afraid Paddy's latest column is not accurately investigated and represented.
When someone buys in a development, whether paid for in cash or through a bond obtain from a financial institution, no funds are given to the developer until transfer of ownership has taken place. These funds paid on conclusion of the sale agreement are held in an attorneys trust account until transfer. Similarly, the bond registration will only register on transfer of property. In other words, if the developer is liquidated, the funds held in trust are refunded to the buyers.
Developers don't build the development with these funds. They need to have sufficient funds of their own to complete the development. At times, the funds in trust and sale agreements concluded, are used as evidence of pre-sales in order to obtain a development bond from a financial institution.
If these funds were at any time released to the developer, then one should take issue with the attorneys responsible – not the bank, the developer, the agent or any other body.
Very disappointing article!!!! - Tess Rodrigues
Tess' point is of course completely valid. No funds would normally be released until registration.
Perhaps Paddy would like to pursue this line of thought by looking into developers/builders of houses, usually in housing estates, that make promises and then deliver inferior or incomplete products. NHBRC is often unable or unwilling to assist them and they are left with little or no recourse. Legal action is so expensive that in many cases the buyer is left to deal with the issues alone. - Bruce
My husband was one of the sub-contractors who spent months doing stunning and very labour-intensive stone work around the main entrance of this beautiful estate, as well as building waterways and many kilometers of pathways. One of the reasons why we have had to put his company into voluntary liquidation now is as a result of non-payment or very late payment or withholding of funds for a variety of ridiculous reasons (delaying tactics) by developers (Highland Gate being just one of them). In our business there is unfortunately nothing that can be repossessed to recoup the debt owed. - Gill Nevin
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