Property Management, Property Rentals and Property Financial Services in South Africa

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Purchasing a unit in a sectional title scheme

Buying a sectional title unit requires a specialised estate agency service focus. All too often a generic approach with potentially significant complications, is delivered. Purchasing a sectional title unit entails purchasing an undivided share in the common property as well, together with membership of the body corporate as provided for by the Sectional Titles Act. A due diligence of the body corporate context beyond the boundaries of the section for sale, is therefore of the utmost importance. Relevant information may be found in the body corporate audited financial statements, rules, sectional plans and annual general meeting minutes, all of which should be reviewed in advance of signing an offer to purchase. The estate agent concerned should have all the relevant supporting information readily available for review and should be in a position to advise on relevant issues arising from the documentation. Importantly, the audited financial statements should be evaluated to identify the solvency of the body corporate, reserves available, levy debtors and creditors outstanding together with an insight into trends with these items over the prior year. An insolvent body corporate, reserves below three months levy income, increasing levy debtors and creditors should all signal warnings for significant levy increases or special levies ahead with the risk of municipal accounts going unpaid and maintenance being postponed. The unfortunate outcome is the risk of declining property values and quality of life in the building which can all be identified before committing to purchase. Practically, potential buyers should want to know if there are risks of special levies being imposed ahead, whether levy costs are likely to remain inflation linked and that the body corporate can meet municipal and maintenance cost expectations comfortably.

 

The rules should be closely examined to identify any areas of incompatibility or concern, before an issue or dispute arises. Important considerations are whether pets are allowed to be resident in the building, arrangements for visitors, alterations, fines, parking and drying washing as important examples. It is most important to confirm in advance that there are no rule restrictions which will be difficult to meet, as registered rules are binding and can create significant stress and disruption, not to mention legal costs, if enforced through an arbitration or comparable legal process.  Similarly, the most recent AGM minutes should be reviewed to check whether there are any operational issues which are raised and discussed, which may signal a risk or challenge for the body corporate ahead. The AGM minutes will also give an indication whether the body corporate is well managed in line with the Sectional Titles Act. For example, the AGM should have been within 4 months of the financial year end, a new budget should have been approved, updated insurance replacement values and the election of new trustees should all be confirmed. Finally, the sectional plans will confirm the registered boundary of the section for sale and importantly how staff rooms, parking and balconies are classified. Exclusive use areas outside of the section boundaries should be charged a monthly exclusive use levy for the maintenance and costs thereof and these should be clearly identified for budget and awareness purposes.

Recognising the need for a specialised sectional title sales service, Trafalgar has launched sales teams in Johannesburg, Pretoria and Durban focused on the large and growing sectional title market. A national rollout to other regions is envisaged in the second half of the year. Trafalgar estate agents will be well equipped with the relevant supporting documentation and sectional title management knowledge to advise on the financial stability and welfare of a sectional title scheme together with identifying any risks which should be taken into consideration by potential buyers. In addition, Trafalgar will be offering a market leading, fair deal commission rate of 3.75% (ex VAT), benefiting both buyers and sellers alike by reducing transaction commission costs substantially. The significantly reduced commission offer is achievable by using existing Trafalgar branch infrastructure and well developed online property portals, all of which support an efficient online sales process for all stakeholders involved.  Trafalgar’s estate agency service has been very well received in the first month of launch with a strong flow of new mandates, several confirmed sales and positive interest from the properties managed by Trafalgar.

Written by Andrew Schaefer – Managing Director of Trafalgar Property Management

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