3 secrets behind cheaper stands for sale, possible dangers and tips on risk prevention.

By Cain Ndhlovu

Due to decades long economic collapse in Zimbabwe many have struggled to secure disposable incomes that enable investments in stands. As a result “cheaper stands for sale” have been almost like buzz words amongst most prospective buyers. So for the first time this article is going to review secrets behind why some stands in the market are cheaper. Nevertheless, it will also give a warning pertaining the dangers associated to hunting for discounted residential stands together with some few tips on mitigating such risk. But what are these secrets? Please stay tuned for the disclosure! In the quest for having a roof above the head for the beloved family it may be worthwhile .

 

Secret 1. Foreclosure or Bad debt

Bad debt = time bomb

One of the secrets behind the low prices for some stands is a situation known as foreclosure. This primarily involves actions that are taken by a mortgage lender in which it sells immovable property as a way of recovering debt after the borrower defaults on his repayments. What makes stands being sold under foreclosure cheaper is a lack of the motivation to sale at a price higher than the amount to be recovered. Generally mortgage lenders gives loans that are less than the open market value. The lender simply want this money back and does not have the patience to wait forever anticipating higher offers. Once an offer that clears the debt is secured then it’s a done deal! This is the opportunity buyers with tight budgets would be waiting for. But before nose diving into this opening its wise to consider some possible dangers and useful tips on how to mitigate them.

Possible dangers                      

Purchasing property without thorough due diligence. 

Owners are against the selling of their properties by a bank after failure to service a housing loan. As a result they frustrate prospective buyers such that some individuals end up purchasing without thorough due diligence yet in an agreement  of sale they are made to agree to the fact that they have acquainted themselves with the property.

Money laundering scums. 

Being implicated in money laundering is one of the risks associated with hunting for stands being sold under foreclosure. Why ? Money laundering scums can conveniently be disguised as sales of real estate under foreclosure because money laundering transactions are also time sensitive as criminals would want to quickly finish before they are noticed by authorities. Money laundering refers to purchases of assets like real estate using proceeds of crime with a view to conceal origins of dirty money. Offences also include selling such assets. According to the Money Laundering and Proceeds of Crime Act a person who suspected or knew that he purchased these assets is considered as an offender. Penalties include a punitive US$ 500 000.00 and 25years of imprisonment.

Tips on risk prevention

First and foremost one should identify some money laundering red flags in order to take mitigation measures. Here are red flags to look out for.

Nature of regulation. 

If you are in a jurisdiction with poor regulation and high corruption you should be on high alert.  According to the RBZ money laundering is a serious crime in Zimbabwe. On 24 April 2017  The Herald claimed that the Bank Use Promotion and Suppression of Money Laundering Unit of the RBZ received reports about 471 suspicious cases in the second half of 2016 alone. At the beginning of 2018 the RBZ also released a list of entities and individuals who are suspected of externalizing funds. This therefore, is proof that Zimbabwe is a jurisdiction in which one should be careful when transacting real estate business.

Shelve companies. 

Sometimes stands for sale are owned through shelve companies and third parties that obscure the identity of who controls them. Some sellers are too young to have managed the purchase of valuable land. There are other sellers who have businesses or employment not good enough to justify how the individual afforded real estate investing. These also are red flags one should never ignore.

Mitigation measures.

 Faced with the aforementioned scenarios one should do more  due diligence that involve knowledge of the buyer’s business and circumstance. Measures to verify identity of owners where shelve companies are included should be taken without failure.

Secret 2. Subdivisions

Real estate development on subdivided land.

Subdivisions of larger stands into smaller ones where the owner is unable to meet relevant costs is the second secret behind some cheaper stands. These subdivisions are usually in built up areas. Under these circumstances the owner is unable to put developer’s profit because responsibility for major developments would have transferred into the hands of the buyer. Even if he is to charge profit, it should be negligible.

Possible dangers

Overpayment at purchase. 

Some buyers of subdivisions tend to pay more than an un-serviced subdivision is worth. Here are some reasons why this happen.

a) Failure or reluctance to seek third part price appraisal.

The price of an un-serviced piece of land should be less than that of one with value addition. It is therefore, important to have a third part valuer’s opinion . Unfortunately, some buyers rely on their layman thinking about price when purchasing property.

b) Speculative buying

Some overpay because of the guess that prices will considerable rise and inflate value. This is a dangerous approach because its gambling with factors beyond one’s control.

c) Impulse  buying

Certain individuals make decisions out of impulse instead of rational thinking. This is caused by a number of reasons which include the following;

i. Emotional attachment to a particular area or suburb.

ii. Inexperience in real estate investing.

iii. False advice from relatives, friends etc who are also unenlightened laymen.

iv. Prestige

d. Mortgage windows of opportunity that may close.

In Zimbabwe mortgage financing at tolerable rates is something difficult to come by these days due to economic challenges. Those who luckily get such an opening are always under time pressure to make good use of it before its closure. As a result these people tend to purchase overvalued properties.

Empty promises.

 Some desperate sellers who don’t have the necessary subdivision permit promise prospective buyers that once they are paid proceeds of sale they will secure the permit. Unfortunately, once they get paid they do nothing and the land goes for a long time without being serviced. In some cases the council may decide not to award the permit because its not obvious that once an individual apply for a permit he or she will be granted one. As the buyer gets frustrated he can take legal action which leads to extra expenditure on lawsuits.

Tips on risk prevention

1. Incorporate all of the seller’s promises into an agreement of sale.

If a bona fide owner who wishes to sell a subdivision that is yet to be granted a permit promises that he or she will process this document once sale proceeds are earned amongst any other promises then each and everyone of these must be incorporated in an agreement of sale. These must constitute standard conditions upon which the validity of contracts depend. If he is not serious you will see it because no sane person will append his or her signature against promises he or she is sure never to fulfil.

2. Get professional advice

In life there are things one cannot avoid . Getting professional real estate investing help is an example of one of them. An adviser must help you in at least three ways which are as follows;

a. A rational approach to real estate investing in order to avoid emotional decision making that will result in the loss of thousands of dollars.

b. Third part market appraisal. A professional helps you to understand whether or not you are being overcharged by giving his own opinion about the price.

c. Help to avoid speculative  buying by proposing a comprehensive real estate investing strategy that takes into consideration other dimensions like rental income.  

Secret 3. State land

State Provinces of Zimbabwe

The State grants land at concessionary rates for housing as a result you can find some stands cheaper this being the reason. In order to grab this opportunity one must however, fulfil requirements that come along with it. Being on a local authority’s housing waiting list and being organized as cooperatives are some of these requirements.

Possible dangers

Bogus housing cooperatives. 

As the need for residential stands rose with increase in the population countless housing cooperatives have mushroomed on the urban landscape. The chaos bogus ones commonly called land barons caused to date has dominated the headlines more often than positive contributions made by genuine players. Since joining an already existing  cooperative is preferred the most by many home seekers it is important to know what distinguishes genuine ones.

Cheap politics.

Some corrupt politicians allegedly give state land as residential stands to desperate home seekers. Later it turns out that this land would have been reserved for other uses not residential by the local authority. As a result many individuals have lost property to housing demolitions as authorities destroy structures they deem illegal.

Tips on risk prevention

It is important to verify the genuineness of cooperatives as many have lost hard earned money to criminals. Criminals find loopholes in the governance system which does not have a one stop shop like the Deeds Office where people can verify all documents about housing cooperatives. Housing cooperatives emerged not by design but as an afterthought that was the most viable option to fill in the gap that was left  by disappearing companies which the government used as conduits for delivering housing before and after independence. This is the reason why there is no order in as far as verification of their genuineness is concerned.  There are no standard security features unlike those on title deeds that one can look for on whatever authenticate that a cooperative is bona fide but one has to figure out things for himself.

So that being the case I guess we should start by defining what we mean by a genuine cooperative.  A genuine housing cooperative must be a legally registered entity with an agreement of some sort between itself and the local authority which allocate a piece of land for subdivision of residential stands. In my experience the best place to go where one can verify the genuineness of a housing cooperative using this definition is the City of Harare housing department at Rememberance in Mbare.

Verifying with City of Harare Rememberance Drive Housing Department. 

With the emergence of housing cooperatives the City of Harare has done well by devoting an office at  Rememberance Drive Mbare that deals only with those legally registered cooperatives they would have allocated land for stands anywhere in the capital. If there is a housing cooperative you would want to join this office can help because all entities that the authority allocated land  to anywhere in Harare must be found in the city council database. If council officers cannot find the cooperative in their database its wise to let go. Better be safe than sorry! I tried other methods of verification but I have been frustrated by a number of things and all of them pointed to the fact that there is no order yet in this sector. I believe the Rememberance Drive avenue is the best for now.

DISCLAIMER

This article is made available for educational purposes only as well as to give you general information and a general understanding of real estate investing, not to provide specific advice. The article should not be used as a substitute for competent advice from licensed practitioners. Sharing it with friends is welcome !


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