In South Africa, owning immovable property is often associated with wealth, security, and long-term investment. For many, property is a cornerstone asset, appreciating over time and generating passive income. But what happens when that same property starts costing more than it’s worth? When does it stop being an asset and become a liability?
Let’s unpack this from a legal and practical point of view.
Asset vs Liability: The Legal and Financial Distinction
An asset, in legal and financial terms, is something that adds value or generates income. A liability, on the other hand, drains resources, whether through expenses, maintenance, taxes, or legal exposure.
Immovable property (land or buildings) becomes a liability when:
• It is unoccupied and thus produces no rental income.
• The holding costs (rates, taxes, levies, insurance, security, etc.) exceed the financial returns.
• The property requires significant maintenance or repairs.
• It’s involved in litigation or subject to land claims or disputes.
• There is illegal occupation or vandalism, leading to potential legal costs and devaluation.
Developers: Big or Small, You’re in the Service Industry
Whether you’re a large-scale property developer or a solo entrepreneur with a few units, it’s vital to realise one thing: you are in the service industry.
You’re not just building properties — you’re responding to market demand. If the demand isn’t there — or if your property doesn’t align with that demand — you’re not serving anyone, and your project can quickly become a sunk cost.
Vacant or ill-suited developments, no matter how modern or well-located, aren’t fulfilling a need. And that disconnect turns your so-called “asset” into a liability.
The Myth of “Value Always Increases”
While property has historically appreciated over time, this is not a guarantee. Market fluctuations, area decline, zoning changes, or economic downturns can stagnate or even reverse property value. An unoccupied or unmaintained property in a deteriorating area can quickly become a non-performing asset.
No Occupant = Liability
Here’s the key consideration: a property without an occupant is not generating income, but it still incurs ongoing costs. In such cases, the property is not self-sustaining — it costs you money instead of making it.
Legally and financially speaking, such a property fits the definition of a liability.
Here’s why:
1. Municipal Charges: You remain liable for municipal rates, taxes, and utilities, regardless of occupancy.
2. Security Concerns: Vacant properties attract vandalism, squatting, and crime. Owners are often liable for injuries or illegal activities that occur on their premises.
3. Insurance Risk: Some insurance policies do not cover unoccupied buildings, or only offer limited protection.
4. Compliance Costs: Even vacant land is subject to town planning laws, servitude obligations, and environmental compliance in some regions.
What Can You Do?
If you own unoccupied immovable property, consider the following steps:
• Lease it out, even on a short-term basis, to offset holding costs.
• Sell if the property has become unsustainable or is depreciating.
• Develop or repurpose it to increase its utility or value.
• Consolidate or subdivide if zoning allows — to reduce costs or increase appeal.
• Consult with an expert property attorney’s firm, like A de Bruyn Attorneys to explore legally viable strategies.
Final Word: Monitor the Balance Sheet
In conclusion, while immovable property is traditionally considered an asset, the reality on the ground determines whether it functions as one. The absence of an occupant, income, or potential for appreciation can tip the scales quickly into the realm of liability.
And remember: if you’re in development, you’re in the business of serving real people with real needs. When your property fails to meet those needs, its role as an asset dissolves — leaving you with risk, cost, and responsibility.
If you’re unsure where your property stands, consult with our offices to conduct a liability audit of your portfolio.
Need advice on managing or exiting an underperforming property? Contact A de Bruyn Attorneys for a consultation today.