In recent months there has been a marked increase in the number of people buying into multiple unit developments, gated estates and sectional title schemes – not for their own use but as an investment. While this is a welcome trend, it has to be accepted that it can lead to problems, says Bill Rawson, Chairman of the Rawson Property Group.
The main problem, he says, is that certain investors, while enjoying the current scenario in which rents are rising fast year-by-year, tend to be very slack about ensuring that their properties – as well as those of their neighbours and communal grounds – are properly maintained.
“Today’s buy-to-let investor is inclined to see his investment as being in much the same category as a bond or share purchase. He sees no need to be closely involved with it.”
This tendency, says Rawson, can be disastrous because if properties are not thoroughly maintained, they will almost certainly lose value very rapidly. Furthermore, if this happens on a large scale in a development, even those units which are being well maintained will feel the effect.
“As a rule of thumb, I believe that not less than 5% and up to 10% of the rentals each month should be set aside for maintenance purposes,” says Rawson. “Investors should make it a rule that, with the help of their rental agents, they inspect their properties at least twice a year.”
In addition, says Rawson, the investor should ensure that he is elected onto the body corporate’s board as a trustee or, in the case of a home owners association, as a member of their committee.
“Only by doing this can the investor keep close to the management of the development and ensure that the body corporate carries out its obligations to the scheme as a whole,” says Rawson. “A good board or committee member will see to it that the development goes in the right direction by being well maintained.”
It is tragic but true, says Rawson, that certain excellent developments which have shown remarkable capital appreciation in their first years have later gone downhill purely as a result of a bad body corporate. By the time the (usually expensive) rescue operation is put in place through a change of management, increased levies and the raising of a special loan, the development can, says Rawson, very often be close to bankruptcy.
“Few people really enjoy attending body corporate and home association meetings, however if you neglect to do so, you only have yourself to blame if they do not show the capital appreciation growth which is a marked characteristic of such schemes in South Africa today, especially in the R500,000 to R1,5 million per unit category,” says Rawson.
Attendance at such meetings, adds Rawson, can also prevent another grave danger in the sectional title sector. This, he says, is the tendency of some trustees to act in a very high handed manner and charge excessively on levies. Although this practice is not widespread, it has been noticeable here and there.
This type of behaviour, he says, is often the result of the trustees appointing a greedy managing agent who charges far too high a fee for his services. Such agents, says Rawson, have sometimes bullied their trustees into accepting a system whereby, in addition to compound interest rates being charged on outstanding levies – which is sanctioned by South African law – they also impose fines for any misdemeanours which they regard as demeaning to the development as a whole, e.g. blocking a drain or delaying to repair a broken window.