Absurdity of South Africa’s estate agency laws

08 May 2018
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We all want to see a growing economy that allows people the dignity of work and to improve their living standards. This applies to every sector and industry.

Writing from the property industry point of view, I believe, the building of new residential accommodation provides not only housing and jobs but creates a whole range of other job opportunities concerning repairs, maintenance, management and much more. Unlike other industries, construction has a direct bearing on the living standards of all who participate in what could be the launching pad for future growth – just see what it has done for Dubai, Singapore and the like.

But this is not what is happening. Instead, the industry is being battered by policy and legislation that does nothing but reduce the size of the industry and make it unattractive to investors.

When I entered the estate agency business over 40 years ago, there were few barriers to entry. All you had to do was to apply for a position as an estate agent or one of its many supporting staff. You were trained and guided by your employer. You studied the building regulations and local by-laws and learnt about bond financing so that you could do the job. The municipal and provincial departments were well run and did the little they were responsible for doing, well. Nobody could build without approved plans; zonings laws were enforced. Before there was sectional title, if you did not pay your electricity bill, it was disconnected by the municipality – the contract was between the local authority and the tenant.

But that situation has changed dramatically to the detriment of the industry. No longer is there much incentive to invest in building new blocks of flats or buying property to rent out.

Tenants seem to have more rights than the owner of the property nowadays. If they refuse to move out, it is nearly impossible for landlords to evict them legally, and the time and cost of doing so is ruinous. Tenants who do not pay for their services can no longer simply be disconnected – this has to be done through the courts. Landlords have to decide whether to allow tenants to accrue huge bills or go to court. Even when the tenant is found guilty of not paying, the court order usually is for a monthly payment less than what they consume monthly. When a body corporate is threatened by the power supplier with disconnection unless they pay their bill, the body corporate has no power to disconnect the tenant who is not paying.

To work in the estate agency industry as a salesperson or administrator, you now have to register with the Estate Agency Affairs Board (EAAB) – a costly exercise – and then pass NQF4 exams to continue after the first year. To be a Principal requires three years’ experience and an NQF5 certificate. An established real estate business, built up over many years, is almost impossible to sell today – because potential buyers have to not only have the purchase money but also the qualifications. As a result, many successful estate agencies are simply closing their doors when the owner retires.

Despite the statutory requirement, many estate agencies are no longer or never have been registered with the EAAB. Unregistered companies reported to the EAAB on charges of fraud and theft, with confirmation from auditors, simply carry on operating as they know the EAAB will not take any action against them. Registered estate agencies are inspected by the board for compliance from time to time – but those that are not registered, because they are not on the EAAB list of estate agents, are not.

A good example of a red tape nightmare is the new Sectional Titles Management Act (STMA).

Sectional title, essentially, applies when individuals own separate units in the same building or complex, either as an investor or as a unit owner. Many are ordinary working people and are not necessarily sophisticated businesspeople. The old STMA worked quite well, but the new one requires the body corporate to keep detailed and intricate records. It stipulates that the rights of tenants are essentially the same as owners, begging the question: how are tenants involved in the ownership of buildings? Bear in mind that the trustees who are required to watch over the affairs of sectional title properties, are volunteers, mostly non-professional people with minimal administration skills. For example, trustees must have a meeting to elect a chairman within 10 days of the AGM – but why? Prepaid electricity meters, which would be a solution to the problem of non-payment, may only be installed after a resolution of owners and providing that they do not disconnect if a tenant does not pay – again, why?

Owners and tenants can appeal to the Community Schemes Ombud Service (CSOS). Hearings of the CSOS are held in Durban – even if the sectional title building is in Bloemfontein or wherever – and therefore incur a considerable waste of time and money.

The new Act does little or nothing to assist the running of body corporates but is doing a great deal of harm. Meetings that normally required only a 10% quorum for the largest buildings to be held, now need 33.3% attendance and voting by participation quotas (PQ). It is causing almost every AGM to be held over to the same place and time the following week and is still poorly attended. Most owners do not have the time or the inclination to attend meetings. Changing the number of proxies to only two per attendee is detrimental to the effective running of body corporates and the main reason why meetings cannot be held. Why can one not give their proxy to whomever they wish? If they do not like the result, they will not give their proxy to the same person again. And then, trustees and owners who are in serious arrears can no longer be stopped from voting in the affairs of their buildings. This is a major problem, as it is highly unlikely that a defaulting trustee will hand themselves over for arrears!

Other negative influences on the property industry are:

The Consumer Protection Act (CPA), where, for example, landlords and tenants can no longer negotiate a lease period because the tenant can always give 20 days’ notice. (Note, 20 days, not a calendar month. Nowhere in the world do people let from odd days in a month instead of the first to the end of a month). Why can the landlord and tenant not negotiate their own conditions of lease? Tenants have 20 days after notice of non-payment to pay up to date before a landlord can give them notice to vacate – why, when rentals are payable in advance? This enables a continually in arrears tenant to do nothing about catching up on payments if they manage to pay something at the end for each month. 

Local authorities are defunct in many cases. With regard to the property industry as a whole, the National Home Builders Registration Council (NHBRC) should ensure that properties are properly constructed – but it does not. A crazy situation that might arise, for example, is that an owner in a section title scheme built in phases has no right to complain about the build quality of the swimming pool or boundary fence built after they have taken ownership, despite them being a co-owner of the common property. This is because the body corporate that runs the scheme and is responsible for the management and maintenance of the common property – the pool and boundary wall –  has no status with the NHBRC and cannot complain about the quality of the build of common property items. Instead, each owner must make an individual complaint.

The South African economy and job creation can receive a huge boost from new confidence in the building industry. To do this, the numerous barriers to entry to the market and management of properties must be removed. These could include but are not be limited to:

  1. Making it easier for agents to enter into the property industry by removing the barriers to becoming an estate agent. Simple registration should suffice for entry, while examination and standards should be in place for owners (Principals) of estate agencies – the very people who would be required to supervise their employees.  This would also make it easier for small estate agencies to be on-sold like any other business.
  2. A thorough relook at all property related legislation and the use of the KISS principle to simplify every aspect of property ownership.
  3. The understanding by government that it is not the private industry that must provide social housing and that tenants must abide by the conditions of their leases or face the consequences – no pay, no stay. A simple process to cancel leases and get eviction of non-paying tenants should be put into place for unpaid rent and services or bad behaviour.  Suggested 7 days warning, then cancellation with appeal if they have evidence of payment to the rent tribunal (where working) or to the magistrate’s court, with a limit of a further 7 days for a decision, i.e. the whole process finalised within 30 days.
  4. A total review of the Sectional Title Management Act with an understanding that owners want a simple, fair, and easy to undertake management guideline for managing sectional title schemes.  They should be allowed to have their own rules as long as they are fair and reasonable.  Management has to be made simpler and easier. Tenants should have no say in management.  There are other avenues if they feel they are being unfairly treated by the body corporate.  Body corporates must be considered to be service providers and as such entitled (after 7 days’ notice) to disconnect supplies.
  5. Developers must be encouraged to build properties to let, and many of the above suggestions will assist.
  6. Property development is the backbone of economic development, and a property market that is weighed down with unnecessary administration and red tape cannot make the contribution to the economy that it should.

Mike Spencer is the owner of Platinum Global in Bloemfontein and has been in property since 1975



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