Property 24/10 - 83

Buying a sectional title - what to ask?
A Property24 reader asks:

What should I consider before buying a sectional title property?

Phil Calothi, owner and Managing Director of the Cape Town based managing agent company,   Land and Sea Development Services (Pty) Ltd  , advises:

Apart from the normal purchase considerations of the product itself such as price, position, internal layout and finishes, parking and communal facilities, it is very important to research the potentially hidden risks in respect of which sales agents are not inclined to offer information unless they are specifically requested to do so.

One can classify these risks in two categories, namely financial risks and lifestyle lists.


Ask the agent to provide you with a copy of the sectional plans, the most recent audited financials, the most recent AGM notice, the current levy budget and the insurance schedule and look out for the following:

Home buying: Now or later? - The stats
South African house price growth declined to 4.5 percent in October from 5.1 percent in September according to the October FNB House Price Index.

The bank says further real price decline is expected and in nominal terms, there is a possibility of some negative year-on-year (y/y) house price growth in 2012.

FNB says the combination of a weak market balance, slow economic growth and significant consumer price inflation pressure on incomes, will keep house price growth under pressure.

The report revealed that the y/y house price growth earlier this year is believed to be due to improved affordability of credit following two late 2010 interest rate cuts.

John Loos, FNB Home Loans property strategist says the slowing nominal house price growth suggests that the longer term downward correction in house prices in real terms is continuing.

How to deal with special levies
The thought of special levies is unwelcome news for most sectional title property owners. 

The fear among sectional title owners that an unexpected special levy may be imposed on them, says Catherine Cockcroft, sales manager of the levy funding company, Propell, is very real, especially for those struggling to make ends meet. 

Owners find themselves suddenly liable for their portion of a new levy (calculated in relation to their participation quota, i.e. the square meterage they actually own in the scheme) and these special levy payments can be substantial, says Cockcroft. 

The Prescribed Management Rules, she says, make it clear that the annual budget must be drawn up by the trustees and approved by members at the AGM. In a perfect world, she says, this budget would always include a surplus which allows for the accumulation of a reserve fund to cater for ongoing maintenance and upgrades in services such as security and elevators, etc. 

“Regrettably, we do not live in a perfect world and many schemes today are not run in this efficient way,” says Cockcroft. 

Foreign buyers eyeing SA Property
The fall in the rand value against the US Dollar, British Pound and Euro in the past few months has rekindled overseas interest in SA property.

According to Berry Everitt, managing director of Chas Everitt International Property Group, this has also raised the possibility of a significant boost to the local housing market.

He explains that since May, the value of the rand has shown a sharp decline that was bound to catch the attention of overseas investors, especially in the light of the economic distress in Europe.

People all over the world are searching for safe havens for investing and South Africa with its stable banking system and growing economy is increasingly perceived as a good option in this regard.

This is clearly reflected in the fact that at least 30 percent of the enquiries Chas Everitt receives now are from outside of South Africa.

Everitt says most of the enquiries come from the UK, the US, China and Germany. There is also interest from investors in some European and Asian countries, as well as Russia and the Middle East.

FNB’s 20% home loan market share
FNB's total market share of new mortgage loans (FNB Home Loans and FNB Housing Finance) amounts to almost 20 percent of total current market share.

According to Jan Kleynhans, chief executive officer of FNB Home Loans, the bank’s market share in the middle and upper income segment is 18 percent and in the affordable market it is around 22 percent.

Referring to a recent article on market share, Kleynhans said while it was difficult to dispute figures in the article, he believed readers could be left with an impression that would not be supported by Deeds Office data.

"FNB's mortgage strategy is not to seek market dominance but to address critical housing needs in lower income groups and to seek high quality lending in middle and upper income groups," he explained.

Sectional title amendments - take note
Recent welcome amendments to the prescribed management rules, Annexure 8 of the Sectional Titles Act of 1986, were published in the Government Gazette in September 2011.

Martin Bester, the Managing Director of Intersect Sectional Title Services, who sits on the board of the Residential and Sectional Title Committee of SAPOA and is an alternate member of the Sectional Title Regulations Board, explains that one such amendment is the insertion of rule 31(2A), which states that the budget of the body corporate shall run concurrent with the financial year of the scheme.  

Bester says this, in turn, led to the amendment of rule 36 (1) which now provides for the trustees to prepare the budget, prior to year end, and to lay this budget before the members at the AGM. 

"Whereas in the past many budgets were ‘on hold’ until the AGM was held and the budget approved by the members, sometimes putting strain on the cash flow of the body corporate.”

Sale subject to buyer selling clause
Although it’s not ideal, there are times when home sellers are more inclined to accept offers to purchase from buyers who still have to sell their existing homes. 

This is certainly the case in the current market, where there are still more sellers than potential buyers, says Berry Everitt, MD of the Chas Everitt International property group. 

“However, both parties need to take really great care when filling in an offer containing a clause stating that the sale is subject to or contingent upon the buyer being able to sell his own home,” he says. 

For example, Everitt says the seller must make sure that the agreement contains a specific date by which the potential buyer must either sell his other home, waive the contingency or cancel the whole agreement. 

Without a date, he adds, the agreement could become ‘open-ended’, with the seller unable to terminate, or to sell his home to any other buyer as long as the original bidder is not in breach on any other point. 


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