Capital growth has been the saving grace of the buy-to-let sector for the past few years, with some areas in Cape Town and Joburg showing property value increases of well over 50% since 2013.
But investors in the sector need to do more to protect it, says Andrew Schaefer, managing director of national property management company Trafalgar. He has urged buy-to-let investors whose rental properties are in sectional title schemes to ensure they play an active role in their body corporates.
Bad management can quickly result in a scheme becoming run down, and put the value growth of all units in the scheme in jeopardy, says Schaefer.
Investors entering the buy-to-let market now are doing so only after careful research and in pursuit of the sort of capital growth experienced over the past five years in areas such as Sea Point (114%), Bloubergstrand (99%), the Cape Town CBD (80%), Rondebosch (75%), Somerset West (63%) and Rosebank in Joburg (84%), for example.
While it is becoming increasingly difficult to find quality tenants who are stable financially and have no history of default, Schaefer says technology continues to simplify the management of individual rental properties.
It does this by improving the screening process and automating tasks such as inspection and maintenance scheduling and the generation of invoices, rental reminders and legal notices.
“A much bigger challenge for many owners now is to ensure the proper overall management of the sectional title buildings and complexes in which many of their buy-to-let properties are located.”
This begins with adherence to the many provisions of the Community Schemes Ombud Service Act and the Sectional Titles Schemes Management Act, which have been in effect since the end of 2016 but are still unfamiliar territory for many sectional title schemes.
“It was recently reported, for example, that only 35 000 out of the 53 000 known sectional title schemes in South Africa have completed their compulsory registration with the Community Schemes Ombud Service Act o date.
“In addition, many schemes are still not compliant with the provisions of the new legislation for the establishment of separate reserve funds, or the preparation of professional 10-year maintenance plans.”
Schaefer say penalties could soon be imposed which would have “a negative impact on all owners in the non-compliant schemes and pose an additional risk for landlords already having to cope with low rental growth and tenants who are taking financial strain”.
“Consequently, we strongly recommend that investors whose rental properties are located in sectional title schemes ensure they play an active role in their body corporates and insist their trustees appoint knowledgeable management companies with demonstrated levels of expertise in community house schemes.”