Why you are paying so much more in property levies in 2017

South Africans who already enjoy sectional title living may have noticed a steep increase in their monthly levy in 2017 – now those flocking to complex-style living need to beware this rising ‘hidden cost’ as well.

According to Paul French, the commercial director for Coastal Property Group, the lower to mid-market sectional title sector will likely be busy in 2017 with the highest demand for well-priced units under R1.5 million likely to drive most of the activity.

However, a challenge for this year, according to French, is higher levies necessary to meet the new maintenance fund requirements that came into effect late last year when the Sectional Title Schemes Management Act (STSMA) was introduced.

The cost of purchasing a sectional title property (such as a property in a complex, estate or in an apartment) carries a monthly levy – costs involved in running the estate including repairs and maintenance.

A quick property search shows that buyers, or owners can pay up to anywhere between R900 and R3,000 per month in levies for a property priced at R1.5 million. Assuming that your bond is approximately R13,500 – having put down a 10% deposit – to add R3,000 to that total can be a challenge in the current economic climate.

Property experts warned that levies may increase by between 15% and 25% as a result of the STSMA.

Andrew Schaefer, MD at property management specialist Trafalgar, noted that the legislation introduced a compulsory requirement for all schemes to establish and/ or maintain a substantial reserve fund to cover the future cost of any major maintenance projects or emergency repairs to common property.

“The aim of this provision is to eliminate the need in due course for schemes to introduce onerous special levies to cover unexpected expenses, but in the short term it is likely to place an additional burden on most sectional title owners.”

Regulation 2 of the Act stipulated that this reserve fund must be equal to at least 25% of the scheme’s total annual levy budget, and that if it is less than that at the start of any new financial year, the owners in the scheme must add 15% to their total levy budget for the next year as a contribution to their reserve fund.

“And since the majority of schemes do not at this stage have a reserve fund at all, most owners will now be facing a levy increase of 15% a year until the reserve fund is properly established – on top of any annual increase required to cover the rising costs of running the scheme.”

Provision has been made for lower contributions once the reserve fund has reached 25% of the annual levy budget, Schaefer said, but owners can still expect their levies to be higher until the reserve fund is at least equal to 100% of the scheme’s total levy budget.

After that, they will be free to decide themselves on what their annual contribution should be in order to maintain the fund at this level.

Specialist conveyancing attorney Peet van Rooyen of Dykes Van Heerden said: “The reality is that property owners could see their levies increase by up to 25% initially until adequate reserves have been accumulated. This is in addition to the standard fixed annual increases required to cover the rising costs of maintaining the development.”

Legal expert at Phatshoane Henney law firm, Anneri Moolman, noted that, in general, there is no limit to what the levies can be increased to, but the management rules do determine that the body corporate may, on the authority of a written trustee resolution, increase the contributions due by the members by a maximum of 10% at the end of a financial year to take account of the anticipated increased liabilities of the body corporate.

Despite rising levies, the changes in legislation are positive for home owners, argued Pam Golding Properties.

“The new changes help protect owners’ rights and safeguard their investment through better governance and a greater reserve fund to draw on should this be necessary.

“While this might in certain instances place pressure on homeowners in the short term, through special levies raised to meet the 25% requirement, the benefits by far outweigh the risks by getting this done upfront.”