The importance of levy payments

The importance of levy payments

Private Property South Africa

There are thousands of sectional title complexes and gated estates in South Africa - and the huge majority have ongoing problems with owners not paying their levies at various times and for various reasons.

“This suggests that there is a fundamental misunderstanding of what levies are about, what they are used for and why paying them is not optional for home owners who have chosen to buy in a community housing scheme,” says Andrew Schaefer, MD of national property management company Trafalgar, which has more than 1300 schemes under management.

Quite simply, levies are part of the price of ownership in a sectional title or other community housing scheme. If you buy a freehold home, you are obliged to pay the municipal property rates in addition to the monthly charges for services such as water and electricity supply and refuse removal, and the same applies if you buy a sectional title apartment or a home in a gated estate. Rates are a cost of ownership.

Similarly, he says, if you are a freehold owner you also have to cover the cost of insuring, maintaining and securing your own property, in addition to your monthly bond repayment. And if you are an owner in a community housing scheme you have to pay your monthly levy as your share of the cost of insuring, maintaining and securing the scheme as a whole - also in addition to your monthly bond repayment.

“The levies are set to cover these operating costs and agreed to every year at the AGM, which should be attended by all owners in the scheme. The cost breakdown for levies (that is, how they will be spent) must be included in the AGM-approved budget.

“The Sectional Titles Schemes Management Act now also obliges community housing schemes to create and maintain reserve funds to cover the future cost of any major maintenance projects or emergency repairs to common property, and a percentage of your levy should also go towards that, in much the same way as a freehold owner might put a monthly amount into a savings account towards the cost of a big renovation or a sudden emergency.”

Unfortunately, says Schaefer, the principles of levy payments and what they are used for are often not communicated properly to the buyers of homes in community housing schemes, “many of whom are inexperienced owners who then end up under the impression that all the additional benefits of living in such schemes are included in the price of their homes.

“But while it is true that it is usually cheaper to share maintenance, security and insurance costs with fellow owners in a community housing scheme than to pay for them all yourself as a freehold owner, the fact is that they are not for free.

See more: Budgeting tips for sectional title schemes

“This means that sectional title and estate home owners who don’t pay their levies are basically freeloading off others in their scheme who are paying for the shared services and towards the shared reserve fund.”

And, he says, as in all instances where a large number of people don’t pay for the services they get, schemes where there are a lot of levy defaulters will very quickly deteriorate because they don’t have enough income to provide the very services that made them attractive to buyers in the first place.

“What is more, the mounting costs of trying to collect those arrear levies from the defaulters will add to the scheme’s woes – resulting in deferred maintenance and security cutbacks that will have a negative effect on the value of all homes in the scheme, including those belonging to the defaulters.”

Real estate consumers need to understand, says Schaefer, that the only time they will not have to pay municipal rates and the additional costs of home ownership, such as levies, are when they are tenants, and these costs become the responsibility of their landlord.

“And then although they will be saving the costs, the tradeoff is that they will also no be enjoying the benefits of home ownership, including growth in the value of their investments.”

Read more: Who pays the special levy when a property is being sold?


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