The current process of conducting real estate transactions in South Africa is largely manual. It is a paper-based and paper-driven process whereby a minimum of 25 pieces of physical documentation are needed per transaction (Schindlers, 2016; PEXSA, 2017). South Africa makes use of a deeds registry system where all records on properties (and their transactions) are stored. While the deeds registry system in South Africa is well functioning, it is has also
3.2 The Current Real Estate Sector in South Africa
been described as antiquated due to the predominantly paper-based process that has failed to keep up with a modern digital society (Stoman, 2017). The same can be said for many real estate transaction practices around the world, as there is a consensus that property transactions have lagged behind in modernisation on a global scale. The paper-driven process has a knock- on effect as it makes the process extremely dependent on human resources. There is great pressure on conveyancing professionals to conduct these complex transactions in an efficient manner while also managing all the different stakeholders involved. In addition, property records and title deeds are stored manually by filing or uploading documents into centralised systems. With this comes an opportunity for fraud through hacking and document manipulation. There is also a risk of loss of documents through theft or natural disaster. Consequently, records are vulnerable and there is no guarantee that they will exist and be accessible forever (Louise Tonkin Inc, 2013; PEXSA, 2017). The process is susceptible to human error and administrative mistakes, process delays, and on a higher level, market disruption and security threats (Amadi-Echendu, 2013; Schindlers, 2016).
The manual approach that is taken when conducting and completing property transactions in South Africa is a primary reason for transaction duration. Conveyancers are required to manually request and obtain certificates from other stakeholders for the lodgement of documents at the Deeds Office. Manually scripting documents for signage opens the door for erroneous data to be input, which could slow the process and cause time delays. This paper- based process coupled with the inefficiencies above, combined with the stakeholders and documents needed and one can see how complex the process can become (Amadi-Echendu, 2013).
3.2.2 Multiple Stakeholders Involved
A minimum of 12 stakeholders are involved in the average South African property transaction. Most of the time this number is increased because among these stakeholders, certain tasks may be distributed or outsourced to specialists or other parties. For example, the local municipality is responsible for issuing a rates and clearance certificate but this job may involve more than one person within the municipality (Amadi-Echendu, 2013; Louise Tonkin Inc, 2013; Schindlers, 2016). With more stakeholders come more documents needed, more costs incurred, and a more complicated chain of events. Another drawback of having so many stakeholders involved is data redundancy (Stoman, 2017). While 25 documents may be the minimum number of documents needed for the transaction to take effect, these may be needed by more than one party in the process. Consequently, the same information may be stored both physically (across various locations) as well as being manually uploaded and added to more
3.2 The Current Real Estate Sector in South Africa
than one system. This is due to the fact that not all of the systems used by all participating stakeholders are interlinked with one another and therefore, no common database or transaction platform exists (SA Home Loans, 2016; Stoman, 2017).
3.2.3 Costs
Currently, all documentation pertaining to a property transaction is stored by the Deeds Offices across South Africa. The significant amount of physical paper documentation needed means that sufficient storage and safekeeping is required. Records need to be filed, labelled, and stored correctly. However, common errors include misplaced or misfiled records and lost title deeds (Amadi-Echendu, 2013; SadlerInc, 2015). Costs are incurred in recovering or generating new copies of said documents. In addition, all Deeds Offices secure these documents in fireproof facilities, which have their own associated costs. While these costs may not be incurred directly by the buyer and seller (they may however be filtered down to them) it still illustrates the costs incurred in this business process. The numerous stakeholders involved will also require service fees and payment for each transaction undertaken. As will be discussed further in this chapter, there are various costs incurred during the process such as conveyancing costs, municipality costs, finance (bond) costs and Deeds Office costs, and if property owners want a copy of their title deed in digital form then this will have to be requested and will only be issued at a fee (Joubert Galpin Searle, 2017; Stoman, 2017).
3.2.4 Payments and Settlements
Currently, the changing over of assets and funds do not happen concurrently in property transactions, which opens the door for financial deceit. Right now, sellers need to give up their houses (and transferring property ownership at the Deeds Office) and stakeholders their services before receiving their payment, placing these people in a situation of risk (Stoman, 2017). There is a time delay between the registration of property and the seller receiving their funds. This is not the case with other asset classes yet in real estate transactions, processes and their payment systems have lagged behind in modernisation (Stoman, 2017; Smith Tabata Buchanan Boyes, 2018). The concept of simultaneous delivery and payment is termed ‘Delivery Vs Payment’ (DVP) and it states that as an asset is transferred from one owner to another, so the funds should flow in the other direction instantaneously. When it comes to the South African securities market (equities or bonds, for example), DVP applies but this is not the case with property transactions. The current process and its payment systems are vulnerable to fraud and money laundering, and indeed, South African property transaction fraud reached