LONG TERM, REALISTIC BUDGETING ESSENTIAL ON SECTIONAL TITLE SCHEMES, SAYS MICHAEL BAUER

Private Property South Africa
Michael Bauer

One of the proven successes at the property management company, IHFM, said its general manager, Michael Bauer, recently has been the implementation of two to five year budgets for maintenance and repairs.

“These days,” said Bauer, “whenever we become involved with a sectional title scheme, we sit down with the trustees and endeavour to be realistic about the likely future costs.”

This, he said, results in IHFM then drawing up two budgets, one for current operational expenses and one for the capital expenditure likely to be required over the coming years. Such budgeting, said Bauer, is essential if the scheme is to be well managed and see its units increase in value.

The two budgets are then combined to give a total anticipated annual expenditure for a stipulated period and the monthly contributions to this (which are dependent on the size of their units or their respective Participation Quotas).

If a sectional title scheme adopts accurate budgeting of this kind, says Bauer, banks will look favourably on granting bonds to those wanting to buy into it.

“It is now standard bank practice to ask to see the audited financial statements of sectional title schemes. If inadequate provision has been made for maintenance and improvements, the banks will pick this up – as well as the number of members in arrears on levy payments and the amounts owing to the municipality. If these are not satisfactory, no bonds will be given on that scheme and this will drastically affect the marketability of units and their property values.”

Where special levies are being or are likely to have to be paid, said Bauer, it is essential that this be revealed to new buyers – but this is sometimes not done.

“In this situation, a new owner can find that he has to pay an unforeseen extra cost of which he knew nothing at the time he signed for his unit.”

Where sectional title schemes are already in financial difficulties, said Bauer, the implementation of well-planned budgets is difficult, because the trustees have to take into account the regular late and non-payers and the monthly cash flow for working capital. It then often happens that the maintenance allowance and reserves for future maintenance are used to pay for the operating costs instead of going towards building up the maintenance reserves.

“On well managed, efficiently budgeted schemes, however, the body corporate’s bank account will often be strong enough to cope with all future expenditure, including major items like lift or window frame replacements.”

Michael Bauer is a regular contributor to www.sectionaltitlesa.co.za. For further information on IHFM’s services go to www.ihfm.co.za or telephone Michael Bauer on 083 255 4442. He can also be emailed on michael@ihfm.co.za.

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