Financial and relationship changes happen when you move from being a tenant to an owner
When a tenant in a sectional title complex decides to buy a unit in the same or another complex, they often assume that, apart from having to pay the levy, nothing much will change.
But this is not so, says Andrew Schaefer, managing director of property management company Trafalgar. “It’s not just a case of exchanging rent for a bond repayment and adding the levy.” Home ownership is very different from renting and those who plan to make the change should be well prepared.
“For example, buying into a sectional title scheme will make you a member of the body corporate, with responsibilities towards your fellow members when it comes to protecting the value of all the homes in your complex, as well as the right to help decide how it should be run and what the levies should be.”
So, potential buyers must be sure the scheme they want to buy into is financially sound. There must be no large levy arrears; a sizeable reserve fund for planned and emergency repairs; no debt to the local authority or any service providers and up-to-date insurance cover.
“In addition, you should check that the complex is professionally managed by an accredited managing agent company… Most owners and their elected trustees are not legal experts or property professionals, so they need the support of qualified and experienced managing agents when it comes to the financial management, administration, governance, payroll and the many statutory reporting obligations of sectional title schemes.
“This becomes more evident when one considers the combined value of the property assets involved – and the lifestyle and financial implications for owners when schemes are not well managed and become indebted and rundown. Even those owners who have paid their levies are at financial risk.”
Schaefer says other things to think about while preparing to buy a ST home include:
Location and amenities: When you tire of a rented home it is relatively easy pack up and leave. Selling a home is much harder and can be a lot more costly, especially if you decide to move within a couple of years.
“So, you need to think long-term when buying, and that means taking a good look not only at the complex itself, but at the surrounding area to ensure that it will meet your needs for the future. Consider shops, schools and public transport; security; proximity to work and the overall condition of the other homes.”
Neighbours and rules: When you buy into a complex, you are also buying into a closed community where you will need to work with other owners to ensure that it is funded, maintained and secured, and that everyone’s investment is protected.
Check out your prospective neighbours to ensure you will be able to establish friendly relationships with them. “You must also read the scheme’s management and conduct rules before you sign an offer to purchase to make sure these don’t clash with your own lifestyle or plans for the future.”
Levies and rates: One of the main reasons people buy into a sectional title scheme is that they don’t have to spend time on gardening or home maintenance but can pay a levy to make sure all that is taken care of.
But they do need to make sure exactly what the monthly levy does cover and that it includes security and their contribution to the scheme’s insurance.
“You also need to be aware that in addition to the levy, you will have to pay your own municipal rates and taxes, and the premiums for insuring your own belongings. In addition, while some levies include municipal water charges, you will probably have to pay a separate amount each month for electricity.”
Interior maintenance: While the body corporate might be responsible for exterior maintenance and the upkeep of the “common property”, homeowners in sectional title schemes are responsible for all the interior maintenance of their units.
The costs of this are likely to be minimal if you are being into a newly built scheme, but you should still budget for emergencies because you will no longer have a landlord you can call to get things fixed.
“A good rule of thumb is to save 1% of the purchase price annually for home maintenance – that is R1 000 for every R100 000 of the price. It should enable you to pay for whatever you need to replace, repaint or renovate in due course,” Schaefer says.