Leasehold property ownership is common around the world, but SA property developers have avoided it. The brave few who've tried it are finding the headway difficult.

For instance, Mvelaphanda Properties abandoned its purchase from government of the super-prime former parliamentary club in Newlands, Cape Town, a few years ago because it feared homeowners would reject this form of ownership. Houses would have easily sold at R5m-plus on freehold.

A leasehold is a long lease of more than 10 years in which the registered owner of the property gives the lessee the right to treat the property as his or her own for the length of the lease. It reverts back to the registered owner at the end of the lease.

The concept is now being tried again in SA, but out of necessity. Waterfall equestrian estate, part of Waterfall City between Sandton and Midrand, is being developed on property owned by a Muslim charitable trust that can't sell its land. Buyers will get infinitely renewable long leases, registered at the deeds office. The Deeds Registry Act defines them as "immovable property" and banks can finance them, registering mortgages over them.

Prices at Waterfall are around R2,5m for an 8 000 m² stand, less than half the price per square metre of nearby Bryanston, thus giving the investor potential for greater income growth as leasehold becomes more acceptable.

Despite the prospects, "my colleagues in the legal profession representing buyers and banks are giving me endless trouble," says estate lawyer Brian Kew of Werksmans. "The problem is one of perception; it's 99% as good as freehold. There's only a minimal disadvantage."

Ironically, half the 600 stands in Royal Jozini, a 16 000 ha estate in Swaziland, where leasehold is common, were sold a few weeks after the launch last month - mainly to South Africans and they are being financed by SA banks.

"I registered a lease in Swaziland for Edcon five years ago and the law there is very much the same as here," says Kew.

Property lawyer Frans van Hoogstraten says the leaseholder has real enforceable rights similar to freehold properties. "If the property is sold, then by reason of the legal principle huur gaat voor koop' the purchaser is automatically bound by the lease," says Van Hoogstraten.

But if a bank has registered a mortgage over a property before the leasehold agreement is registered, the lease could be terminated in a liquidation sale. "It's important that the tenant ensures at the time of the lease that the property is not encumbered by a bond," Van Hoogstraten warns.

"But this difficulty for the bank can be overcome by the appropriate use of a step-in rights agreement' giving the bondholder the right to replace the tenant," he adds. "A registered long lease is an acceptable form of title provided those pitfalls are addressed."

Overall the position of a leaseholder is often more secure than that of a bondholder. Royal Jozini is a good example of how leasehold can open up opportunities for investors. A lake and a mountain surround the Swaziland property in the equivalent of tribal trust land that would not normally be available for private ownership. But the area is poor and desperately needs development and employment.

The development is five hours' drive from Johannesburg and three hours from Durban. Co-developer, Elan's CEO Mark Taylor, expects most of the buyers to come from KwaZulu Natal. Undeveloped stands are selling from R600 000 to R1,2m and lodges for about R2,7m.

The Swazi government has no concerns about foreign buyers and is granting a 99-year leasehold that can be renewed for another 99 years.

The minister of tourism, the local chief and other dignitaries gave an enthusiastic welcome to a small party of journalists flown to the property last week.

Leaseholds can similarly create development and work opportunities for rural communities in SA's tribal trust land, mostly in former homelands, which include some of the country's most beautiful landscapes.

Tribal trust lands are held by mostly rural communities and freehold developments on them are non existent.