Predicted Complex-Style Levy Increases in 2017

03 May 2017

Many South Africans enjoy the advantages that come with owning a sectional title property (a Sectional Title Property is either a Complex, Estate or an Apartment). Such advantages include increased safety and security, property taxes that are lower than freehold homes, a community lifestyle filled with lots of social contacts and close neighbours, and minimal garden, lawn or pool maintenance

However, the above advantages come with a well-known disadvantage, the monthly levy. The monthly levy is used by the body corporate to establish and maintain two funds, namely an administrative fund and a reserve fund:

  • The administrative fund is used to fund annual operating expenses for a particular financial year. Such expenses include maintenance, repair, management and administration of the common property, as well as rates, taxes and other municipal charges and insurance premiums relating to the sectional buildings or land.
  • The reserve fund must primarily be used to cover the unexpected costs of future maintenance and repairs of the common pro¬perty.

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However, 2017 has brought with it higher levies necessary to meet new maintenance fund requirements, the Sectional Title Schemes Management Act (STSMA) which could potentially see levies increasing by between 15% and 25%.

The legislation introduces a compulsory requirement for all schemes to establish and maintain a substantial reserve fund to cover potential costs of any major maintenance projects or emergency repairs to the common property.

An average property search shows that buyers/owners can pay anywhere between R900 and R3,000 per month in levies for a property priced at R1.5 million, assuming a 10% deposit was paid. To add R3,000 to one’s monthly expenses in the current economic climate is daunting, to say the least.

Regulation 2 of the Act stipulates that this reserve fund must be equal to at least 25% of the scheme’s total annual levy budget, and that if it is less than that at the start of any new financial year, the owners in the scheme must add 15% to their total levy budget for the next year as a contribution to their reserve fund.Since the majority of schemes do not at this stage have a reserve fund, most owners will be facing a levy increase of 15% a year until the reserve fund is properly established.

It is not all doom and gloom, there is a silver lining! Yes, in the short term it is likely to place an additional burden on most sectional title owners, but the changes in legislation are positive in the long run as it helps protect owners’ rights and safeguard their investment through better governance and a greater reserve fund to draw on should this be necessary.

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