Excessive utilities price hikes will hit sectional title owners hard

Some city councils are planning on increasing their utility charges at levels way above inflation. Chris Renecle, MD of Renprop, one of the largest suppliers of sectional title residential stock in Gauteng, says that this kind of increase on basic services – which is completely out of kilter with logic and reason - is a reflection of the state of the municipalities.

Renprop’s Property Management division manages a number of townhouse complexes and sectional title residential properties, assisting the trustees with financial planning and the day-to-day running of the complex. They are therefore intimately involved in the collection of levies from owners which cover the municipal accounts as well as payment thereof on behalf of the body corporates.

Renecle says that Renprop Property Management is budgeting for an increase of between 12% and 15% for utilities across the complexes it manages, but feels that owners of these sectional title properties are being held to financial ransom for the delivery of basic services, which are their constitutional right.

“Despite these ridiculous increases in the cost of utilities, sectional title body corporates have had to dampen levy increases to between 6%-8% on average. This is because the owners of units in these complexes are ordinary working folk who would only be getting salary increases within that range. They cannot therefore afford to spend more of their hard earned rands on their single most important asset.”

Renecle says that it also needs to be taken into account that the South African economy, which has been shredded by a rampant exchange rate, has seen a hardening of bond rates.

He says that the average South African homeowner in key entry level residential accommodation is being put to the sword by local governments. “Such drastic increases make the budgeting maths that property management companies need to undertake with their trustees next to impossible.

Renecle notes that in an effort to contain the outrageous utility increases coming from local government, body corporates will be left with no choice but to cut critical investment spending. “This means cutting back on repairs and maintenance - the very heart of maintaining asset value. It also means fewer guards in an escalating crime-ridden environment along with less cleaning and gardening, all of which contribute to the appeal and capital growth potential of properties within sectional title complexes.”

Added to this, Renecle points out that body corporates, in a bid to work within their allocated budgets, will also have to place unreasonable pressure on other service providers to lower their fees. The companies which service these complexes are mostly small businesses, meaning that these price hikes will have a far wider impact than just on the homeowners of sectional title complexes.

“All of these factors equate to less investment in the asset value of the property, a fundamental requirement for owners, investors and bond holders alike,” says Renecle. “This is just not sustainable. Nor is it reasonable.”

He says that in order to avoid detrimental financial implications, sectional title body corporates will need to start revising their budgets as soon as possible in an effort to absorb these ridiculous increases.

In conclusion, Renecle points out that never before has the importance of the right property management company been more pertinent to sectional title schemes. “In situations such as these, complexes need to ensure that the company involved with their property management has their finger on the pulse; that they are competent and can assist with managing these kinds of financial issues in the best interests of the complex and its property owners.”

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