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

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Time for share block has gone

There is really no good reason now for any block of flats or group housing scheme to be run as a share block company, and those that are should be converted to sectional title without delay.

That’s the word from Andrew Schaefer, MD of leading national property management company Trafalgar, who adds that the tax advantage of purchasing in a share block instead of a sectional title scheme was eliminated by SARS way back in 2002, and that share block companies are tricky to run in terms of the requirements of the new Companies and Intellectual Property Commission (CIPC).

share block

“By contrast, conversion is a relatively simple process, especially if the share block company has an experienced managing agent and an attorney on hand to assist with the legalities of drawing up sectional plans, opening the sectional title register, transferring the new sectional title units to their owners and then removing those owners as shareholders of the share block company.”

Some shareholders, he says, may be reluctant to embark on this course because there are certain legal fees and costs involved. “However, many laws and regulations have changed since share block was introduced to SA, and these shareholders should be aware that they could shortly come up against some very real – and possibly very expensive – problems if they stay as they are.”

These problems could include:

*No separate accounts from the local authority for rates or refuse removal. The share block company gets one municipal account to pay and must then recoup its expenses via the levies on shareholders, and if it fails to pay the council, then all the shareholders are in trouble.

*No home loans for potential buyers. At the moment only two banks will grant loans for the purchase of share block units, and they charge higher interest rates than on normal home loans. They also require these loans to be paid back in shorter periods that the usual 20 years. This can make it very difficult to sell share block units as most potential purchasers would need a home loan.

*No actual ownership of your unit. Share block ownership is not actually property ownership. When you buy a share block unit, you are really only buying the right to use it, which is linked to your purchase of shares in the company that owns and runs the building. Your “proof” of ownership is a share certificate issued in your name. When you buy a sectional title unit, on the other hand, you get a title deed that is registered at the Deeds Office.

“And in Durban,” Schaefer says, “there are even more serious problems looming for owners in some of the share block buildings that were built on land leased from the city council, because those leases are running out. They really do need to convert their ownership to sectional title as soon as possible.”

Issued by Trafalgar

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