Sectional Titles debt could be R 3bn

Posted On Thursday, 04 July 2002 10:01 Published by eProp Commercial Property News
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The growing deficits of many developments poses a serious threat to unit owners and managers

Patrick HerbertAn estimated R3bn in levy arrears is owed to bodies corporate of SA's sectional title developments. The average period of arrears is six months, according to research by Propell, a provider of levy finance solutions.

Business Day reported last week that serious financial problems were emerging in the sectional titles industry.

Propell polled managing agents, trustees of bodies corporate and municipalities in its survey. Patrick Herbert, marketing director of Propell, says half the country's sectional title developments, comprising 1-million units, have financial problems.

'Much of the debt is due to municipalities for services. It is difficult for municipalities to calculate and break down the amounts outstanding from bodies corporate because of the manner in which bodies corporate were registered at the inception of the sectional title schemes,' says Herbert.

'We know of municipalities throughout the country that have elected to attach sectional title properties in an attempt to recover debt. That is potentially prejudicial to the rights of unit owners who are up to date with their levy payments.'

Through the finance provided by Propell, arrears of R500000 in municipal charges were settled with the Ethekwini municipality over the last five months after the bodies corporate of eight sectional title developments in Durban opted for its specialist approach to levy finance.

'This amount, when measured against our research, is clearly a drop in an ocean of debt being carried in the sectional title property sector,' says Herbert.

An increase in interest rates is likely to exacerbate a problem that affects sectional title owners who pay their way, as well as banks providing bond finance and municipalities.

Growing deficits in the finances of bodies corporate may mean bonds will not be granted when units are being sold, even if there is a levy clearance certificate for the unit up for sale.

The trustees of the bodies governing the affairs of the eight Durban developments had pursued various avenues to collect arrear levies, says Herbert.

'The fact is that the law obliges sectional title unit owners to pay a levy. There are no ifs or buts, yet some owners manage to avoid their responsibilities and build up arrears.

'Once collection of levies falls behind and monthly expenses are not met, all unit owners, including those who pay regularly, suffer. Maintenance stops, values drop and because of the build-up of debt, units are no longer saleable. That's a situation of particular concern, not least to senior citizens who may want to move on to developments providing specialist care.'

Herbert says Propell addresses the problem by paying the full amount of monthly levies to the body corporate on the first of every month so it, in turn, can pay monthly expenses and establish maintenance reserves. Propell then collects the levies from individual owners.

'If we take on a body corporate with outstanding levies and expenses, such as municipal fees, or with an urgent need for maintenance, these expenses can be raised as a special levy and also be funded by Propell. For those who cannot repay outstanding levies immediately, or cannot pay a special levy, Propell will assist in finding a method of repayment that satisfies both parties.'

One of Propell's latest appointments is for the recently sectionalised John Ross House on the Embankment in Durban. This is a former Gensec property with 532 units.

Propell is a member of the Catalyst Holdings property services and asset management group, in which Cape of Good Hope Bank has a 30% stake.



Last modified on Wednesday, 21 May 2014 19:49

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