Sectional Title Schemes: Excessive Levies are Now More Common

These days, estate agents advising home buyers and buy-to-let investors on property will often recommend that they go for gated villages and security complexes. The reasoning behind this is that, as crime is now so high (it is in fact a serious concern in around 80% of South Africa’s urban areas), security complexes are likely to be better protected than freestanding homes – and will almost certainly appreciate in value at a faster rate.

“This thinking is sound,” says Nancy Todd, the Rawson Property Group’s Regional Sales Manager in the Western Cape, “however it has to be pointed out that many property buyers are now resisting sectional title opportunities because the monthly levies appear to be very high and, even more worrying, are possibly not justified.”

Todd said that she had come across cases where the owners are paying levies of ± R1,500 per month on units that can, even in today’s improved conditions, command rentals of less than R5,000 per month. This means that a very high proportion of the landlord’s income is simply never getting to him.

Todd added that while it is true that levies of this size usually include the external maintenance of the building and the upkeep of the grounds, all too often they do not include any other worthwhile extras such as security guards, a concierge in the foyer or communal facilities which can be enjoyed by all occupants.

“As a result,” she said, “the average investor simply does not see how such high levies are warranted, especially as body corporates are always supposed to run on non-profit lines.”

“In my experience,” said Todd, “too high levies often follow on the appointment of a managing agent, whose fees, possibly calculated as a percentage of each unit’s value, are excessive.”

“What we are finding,” added Todd, “is that a fairly small minority of managing agents will go in on what apparently seems a very low and reasonable fee, but will then add numerous extras which will make the remuneration excessive. By way of contrast, in our experience, good managing agents tend to charge higher but tend to be very reluctant to charge extras.

“We all acknowledge that good managing agents have time and again saved inexperienced trustees from serious financial difficulties. However, it has to be recognized that their tasks, although irksome and requiring a high degree of efficiency and clerical ability, are not that complicated and the skills required for them are not too difficult to acquire. It is time, therefore, that body corporate members started taking their trustees to task when they agree to excessive management fees.”

Todd explained that overcharging on levies is not nearly as prevalent as undercharging, which has had disastrous results for the upkeep and maintenance of certain schemes. “However,” she said, “overcharging has very definitely been seen more often in recent months.”

© Property Wheel

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