Advice and Opinion

Property demand & prices to boom with new sectional title legislation

Tudor Gardens Claremont
Tudor Gardens in Claremont, a well-managed complex with significant reserves, is attracting higher prices for sellers with Seeff recently achieving R27,777/sqm for a renovated one-bedroomed unit and offers upwards of R23,157/sqm for an unrenovated two-bedroomed unit.

The much anticipated and long-debated Sectional Titles Schemes Management Act and the Community Schemes Ombud Service Act that finally came into operation at the start of October, are both vital for this growing property sector are both vital for this property sector for a number of reasons.

Sean Guy, manager of the Seeff Southern Suburbs Sectional Title Division, says that the sectional title property is the fastest growing property sector and the pace of growth is not going to slow down any time soon.

The nature of this type of property has introduced many complexities that often require vital and specific legislation to clarify and bring about effective management of these schemes. Guy says that this legislation should be seen as a refinement of regulations to better meet the practical needs of this type of property ownership.

“The two acts introduce significant changes to scheme management law. Notably, the establishment of the Office of the Community Schemes Ombud will impact on dispute resolution in sectional title schemes, homeowners’ associations and other community schemes”.

The amendments provide for the more efficient management of schemes, says guy. This includes an important mandatory requirement to establish a reserve fund for each scheme specifically intended to finance future maintenance as well as new rules around the limitation of the use of proxies and an obligation to notify the Ombud of the domicile of the body corporate.
The Ombud’s office will now assist schemes to recover arrear levies, remedy an inability to obtain either a special or unanimous resolution, resolve conflicting management and conduct rules interpretation and will ensure the safe storage and availability of these rules.

Guy says important points around the mandatory reserve fund include a suggested (but not yet confirmed) amount of 25% of the projected annual levy figure. Thus, should the projected levies for the next financial year be calculated at R800,000, then an additional reserve amount of R200,000 must be collected from the unit owners and specifically allocated to the reserve fund.

The aim of the reserve fund, he adds, is to ensure that funds are at hand for future maintenance and repairs to the common property. For sectional title schemes that have not been conscientious in maintaining a healthy “war chest” and have little or no reserves, this will inevitably result in a significant increase in levies.

“It is important though to note that rather than add to the financial burden, these provision meet an identified need since many sectional title properties fall into disrepair as a result of inadequate and inattentive financial planning and generally poor management. This becomes important when you want to sell and also for the buyer to for example obtain a home loan”.

“While the spirit of the legislation is to be endorsed, it may well create initial difficulties for many sectional title owners, the smaller schemes in particular”, says Guy. That said, a healthy reserve fund will lessen the need for future special levies.

Trustees and managing agents have ninety days from the publication in the Government Gazette, which was the 7th October, to implement these new statutory provisions.

Guy points out that banks scrutinize the financial statements of a scheme when considering a purchaser’s bond application. Should it appear that the scheme is poorly managed and not financially sound, a financial institution will decline a bond over a unit. It is therefore in the interest of all sectional title owners to ensure the sound financial position of the body corporate.

“A poorly maintained scheme results in a property that does not attract the interest of buyers and frequently sees such units sell for less than the prevailing market trend. A well-managed scheme on the other hand”, he adds, will attract higher prices. He cites the example of Tudor Gardens, situated in Claremont where sound management and attentive maintenance combined with a robust reserve fund has enabled Seeff to attain excellent sales prices.

The 32-unit complex offers lovely gardens and a mix of apartments ranging from one-bedroomed lofts (60sqm+) to mostly two-bedroomed units (95-123sqm) and a few three-bedroomed units of about 150sqm each.

Seeff’s most recent sale here was for the full asking price of R27,777/sqm for a renovated one-bedroomed unit. Comparatively, the highest price achieved last year (also by Seeff) was R18,292/sqm for a two-bedroomed unit. We are currently also marketing an unrenovated 95sqm unit with two bedrooms and already have several offers upwards of R2.2m, equating to R23,157/sqm.
This is notably higher than the prices in the immediate area that range around R17,000/sqm for an unrenovated unit and R21,000/sqm for a renovated unit.

Tudor Gardens has significant surplus reserves and according to the managing agent, have not ever had to raise a special levy, says Guy. The body corporate has been very pro-active and this complex therefore not only complies with the provisions of the new legislation, but, as can be gleaned from the above, property sellers benefit from higher sales prices.

On perhaps a more positive note, the Act has also addressed the issue of the special levy that is in place at the time of the sale. In the past the seller, the outgoing owner, was liable for the special levy in full even that portion of the special levy that fell due after the transfer of the unit.

In terms of the new legislation, this rather iniquitous position is addressed, says Guy. From now on, a seller is liable to pay the special levy (in place at time of sale) only up until the date of transfer, whereafter the balance is for the account of the purchaser.