Financial fitness is often stressed for buyers as they need to be able to show a clean credit record and affordability for bond requirements. But says Debbie Justus-Ferns, divisional manager of Renprop Residential Sales, financial fitness for sellers is equally as important as they too need a clean credit record for future purchases.
“Things are tough economically at the moment and will more than likely continue to be for some time. Aside from the increasing cost of food and fuel, the interest rates and electricity prices are also expected to increase this year … These economic conditions mean that more and more property owners, particularly those living in sectional title complexes, are falling behind on their levies and City of Johannesburg accounts,” she says.
Justus-Ferns points out that aside from jeopardizing their own investment and credit score, when property owners fall behind on levy payments it affects the entire complex as it puts the body corporate finances under pressure.
She explains that when it comes time to sell their property, owners will be looking to purchase another property and therefore need a good credit rating in order to qualify for finance. They also want to be able to get the best selling price on their property, and if they are behind on their rates and levy accounts, the outstanding amounts will be deducted from the proceeds of the property sale. “Added to this, there will more than likely be interest to pay on the outstanding amounts, meaning the seller will be even more out of pocket.”
This is particularly relevant for those who purchased a property in the last three years. She suggests that those who are behind on their bond and or levy accounts to contact the relevant parties and structure a payment plan instead of just leaving it to accumulate. She cautions that if outstanding municipal and levy accounts are left to accumulate, sellers can end up in a situation where the amount achieved on the sale of the property doesn’t cover the outstanding municipal, levy and bond amounts.
“In this case, a seller would have to sign an acknowledgement of debt with the financial institution that holds their bond and instead of walking away with some profit from the sale, will end up walking away still owing money on an asset they no longer own. This situation also negatively influences the seller’s chances of obtaining finance again in the future, whether for a car, property or any kind of personal loan,” she says.
In conclusion, Justus-Ferns says that in order to protect their investment, property owners need to keep a close eye on their budget to ensure they are able to meet their monthly obligations and if they find themselves in a difficult financial position, they need to act fast to make the necessary adjustments to their budgets or figure out a payment plan with the body corporate and/or bank as soon as possible to avoid more serious financial consequences.