select
|

Sectional Titles - Set the levy budget correctly

The levy budget is one aspect of sectional title management where “shortcuts” should not be taken and particular attention to detail should be spent, says Michael Bauer, general manager of the sectional title management company IHFM.

While the Sectional Titles Act does not stipulate that the budget should be itemised, it is good management practice to include as much detail as possible.   

“While a simply laid out budget does not necessarily make it wrong, it will create a lack of transparency,” said Bauer.

If, for instance, at the annual general meeting, the levy budget is presented with line items, e.g. accounts, audit, maintenance, but the maintenance amount is R500 000, the owners in the scheme would want to know what the amount was for, and an itemised breakdown of the overly large amount, he explained. The best way to compile a budget where one category could include a variety of items is to list what the amounts are for: pool, painting, building, plumbing, etc.

While the budget might show the regular amounts that are needed every year for certain smaller items, there might be one very large project that is being budgeted for, such as a complete repaint of the exterior of the building and owners should be able to understand where their levies are going and question the amounts, if they feel they are too high, said Bauer.

The most common items on the budget would be:

·      Municipal services – water, electricity, sewage and refuse removal;

·      Insurance - this is compulsory and the trustees must check that the policy covers the buildings and common property in full and is insured for its current replacement value;

·      Maintenance for the current year – which will always be necessary and items should be planned in advance, on a general planning rota;

·      Contributions to the maintenance fund for possible larger projects in the future – it is better to save for large items than to have to raise special levies;

·      Bank charges;

·      Administrative expenses;

·      Audit fees;

·      Contingencies such as burst water pipes or damaged entrance gates or booms;

·      Managing agent fees,

·      Salaries of ground staff, security; and

·      Other services such as DStv, window cleaning, gardening services, etc.

Costs will also increase from year to year but not by a specific percentage, so it is better not to decide on a percentage increase but to assess the amounts item by item. From a transparency point of view, and for the trustees’ benefit (to be able to keep track of the finances properly), the trustees should go through the figures on a monthly basis, so that if for some reason or another the annual budget is reached before the year is up, they will realise there is a problem that needs to be remedied, said Bauer.

“The transparent reporting will also show the owners exactly what the levies are really used for, that they aren’t paying for a service, that they are actually sharing the operating costs of the whole scheme and every building’s costs will be different. Many mistakenly compare levies with another scheme but don’t realise that that building has a swimming pool and gym, whereas theirs’ might not, for example. Some buildings are new and some are old and would need more maintenance and upkeep funds, and so spend a lot more on maintenance and repairs than others.” he said.

 


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 20 Apr 2018
      Whenever changes in the political ecosystem of a traditional property market create uncertainty, smart investors begin to look elsewhere for new opportunities. Property experts at IP Global have analysed the trends and crunched the numbers to find new markets to explore in Europe and the United States.
    • 20 Apr 2018
      Energy and water self-sufficiency are increasingly important factors in home buyers’ choice of property – especially in Cape Town where the extreme drought of the past few years has made municipal supply costly as well as uncertain.
    • 19 Apr 2018
      During the last decade, rampant development has progressively transformed Cape Town’s property landscape with densification being the order of the day, but there are still one or two hidden gems like Scarborough which have retained their original character, offering an inimitable lifestyle and an attractive investment opportunity.
    • 19 Apr 2018
      The rental market is a cut-throat sector of the real estate market that waits for nobody. According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, first-time renters need to be fully prepared before they even start the process of looking for a place to rent in order to avoid the disappointment of losing out on their ideal property.
    • 19 Apr 2018
      Choosing to buy your first home instead of continuing to rent is a big decision that will usually take some time to put into action, but the sooner you can save up a sizeable deposit, the closer you will be to reaching your goal.
    • 18 Apr 2018
      Selling your home is no small task and as you will quickly find out, there are a lot of misconceptions about the process. Gerhard van der Linde, Seeff's MD in Pretoria East lists the top 5 misconceptions when you are selling your home.
    • 18 Apr 2018
      The Cape Town municipality is now installing water-management devices at properties that have been non-compliant with the new level 5 water restrictions and there are talks of fines between R5,000 and R10,000 for households that use too much water.
    • 17 Apr 2018
      The recent interest rate cut has stoked the coals in the first-time buyer’s market. At least for the next two months until the next interest rate announcement, homeowners are guaranteed lower monthly instalments than in the previous quarter. But, is it wise to take out a 100% bond just to enter the property market while interest rates are low?
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK