select
|

Financial planning - vital for sectional title

One of the fundamental functions of a body corporate is to establish a fund to meet necessary expenses - such as administration, management, repairs and maintenance of the common property.

This fund should also include a reasonable provision for future repairs and maintenance.

This essential management task, if not handled correctly, can have far reaching effects, not only on the way a Sectional Title scheme functions but also ultimately on the saleability and value of the property.

According to Martin Bester, the Managing Director of Intersect Sectional Title Services, who sits on the board of the Residential and Sectional Title Committee of SAPOA and is a committee member of NAMA and the Sectional Title Regulations Board, ensuring that such a fund is established and, very importantly, maintained, is the responsibility of the trustees, who do so with the assistance of the managing agent, if appointed.

“One goes about ensuring that an adequate fund is maintained by preparing realistic budgets every year for approval by the members at an AGM.  Reference to the actual costs from the prior year is a good starting point and trustees need to be cognisant of actual costs of running the scheme and should further provide for reasonable contingencies.  (Note that the City of Cape Town’s increases are implemented annually in July and this needs to be considered when budgeting as municipal costs often constitute a large percentage of the scheme’s running costs).”

“Repairs and maintenance costs are difficult to foresee, however if the Trustees are aware of upcoming projects, quotes can be obtained, and escalated if necessary, to assist with the budgeting process,” advises Bester.

“Members also need to be realistic when approving a budget at the AGM as any amendments made, specifically where proposed levies are reduced, could have long terms effects on the overall financial position of the scheme.”

According to Bester, the ramifications of not adequately establishing and maintaining such a fund could result in the scheme not being able to meet its expenses and may result in special levies having to be raised to cover same.

“Whilst special levies, specifically for major projects such as painting, waterproofing, roofing and improvements, are common place in sectional title, these should be raised for specific purposes only and not to compensate for a lack of funds.”

“One must also bear in mind that potential purchasers and bond holders view the financial statements of a sectional title scheme prior to purchase or granting a bond and that a poor set of financial statements are negatively viewed by both parties.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 16 Feb 2018
      Whether you own a property in a sectional title complex or are looking to invest in one, the financial standing of the body corporate is the single most important thing that can affect your investment or your buying decision.
    • 15 Feb 2018
      One positive consequence of the financial crash in 2008 was the rise in consumerism, especially in the property market, where buyers have steadily become more knowledgeable and more value conscious.
    • 15 Feb 2018
      While most homeowners will take the agent’s commission into consideration when they are trying to determine what the will get out from the sale of their property, many often forget to factor in the other costs involved in a home sale, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      The forecast for the national rental market in 2018 remains a mixed bag of good news and bad news. Although rentals are expected to rise slowly as the challenges of home affordability and tighter lending criteria tighten their grip, it’s a double-edged sword as the market also will come under increasing pressure from factors like declining disposable income levels.
    • 14 Feb 2018
      While you may not have intended to place your home on the market, what do you do if you receive an unexpected offer on your home? In areas where demand outweighs the current supply of homes available to buyers, it is not unheard of to have buyers make offers on homes that aren’t on the market, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      If you are looking to sell your home this year, Debbie Justus-Ferns, divisional manager of Renprop Residential Sales, says that there are five crucial things to do before the ‘for sale’ sign goes up.
    • 01 Feb 2018
      February is the month of love and to celebrate we will be posting about all the things we love this month. Follow the #MyPropertyLoves hashtag to keep up with our favourite things.
    • 01 Feb 2018
      After saving up and months of searching for the right home, applying for a bond and patiently waiting for the keys to the front door, it is finally time to cross the threshold and move into your new home. Now what?
        
    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