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Fast Paced Sectional Title Growth
Property24
23 January 2007
All the indicators now point to the low-cost sectional title sector being the fastest growing in SA property for the next ten years, says Paddy Herbert, Marketing Director of Propell Levy Finance Solutions. The 35 000 schemes currently operating will be doubled to 70 000 or more before 2016.
Bill Rawson, Chairman of Rawson Properties, corroborated this, adding that, if anything, Herbert's figures are too conservative.
By 2016, said Herbert, there will be at least 1,2 million sectional title owner-members and some five million South Africans will be living in sectional title schemes, the vast majority of which will be multi-storey complexes.
"This is certain to happen," said Herbert, "because it is the only way in which accommodation can be provided at a reasonable cost close to CBDs and work places. The former practice of spreading further and further afield with single residential homes is no longer viable, but SA's economic growth and rapid urbanisation have resulted in a drastic space shortage in the urban areas which can only be solved by high density, multi-unit developments."
The predicted large-scale proliferation of sectional title homes within the urban node, said Herbert, carries with it serious financial and management problems.
"By law, as we all know, sectional title schemes have to be run by a trust made up of the scheme's elected owners. In the lower priced units (where the greatest growth will be) it is inevitable that most of the owners will never have had any exposure to business management. In effect, this means that they will not be able to manage a sectional title scheme."
Such schemes, says Herbert, require administrative, budgeting, finance, insurance and levy collection skills. If these are lacking, they rapidly run into debt, are poorly maintained and lose their value.
Herbert says that there are three complementary solutions to this problem.
"The first is to train and educate your body corporate members as Propell does with some 500 owners each year. However, this is a long-term solution and members have been known to duck out of training."
"The second, more immediate solution, is to make it legally obligatory that in the first few years and possibly thereafter the scheme employs a trained, professional administrator, preferably a professional with an accounting, bookkeeping or legal background. The contract agreement should ensure that this person can be held liable if a scheme runs into difficulties while under their care.
"Managers or management teams of this kind," said Herbert, "are a requirement in USA and Australia and our investigations show that the arrangement irons out 90% of the problems. If it works for them it can work for us."
The third solution, said Herbert, is to appoint a professional body to ensure financial compliance by advising on budgets and financing and collecting the levies. Such bodies, he said, can guarantee the finance to cover budgeted expenses and arrears as well as maintenance and can ensure that the scheme's finances are kept on a sound, no-fail basis.
Original article published at www.property24.com.
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