Levies v the ‘hidden costs’ of freehold ownership
Before you decide against buying a home in a Sectional Title development because you don’t like the idea of having to pay levies, you should compare these to all the extra costs that freehold property owners also have to pay on top of their bond repayments.
These include municipal property taxes, homeowner’s insurance, maintenance and security costs, says Denese Zaslansky, CEO of the Firzt Realty group, as well as the bills that most homeowners have in common, for things like electricity and water usage, household contents insurance and internet connectivity.
“And when you add up all these “hidden costs” of homeownership, it is quite likely that the total will be at least the same and probably more than the levy payable on a similar property in a Sectional Title complex.
“In addition, you will inevitably enjoy a greater degree of security at a lower cost in a complex or access-controlled estate than in a freehold home and have much less maintenance and upkeep to worry about. In a complex, you could also have access to a range of on-site amenities and services that are much more cost-effective when shared by a community of owners, such as swimming pools, tennis or padel courts, gyms, laundries and safe playgrounds.”
Nevertheless, she says, it is absolutely vital that before you sign an offer to purchase, you ensure that any complex or estate that you are thinking of buying into is well-managed and financially sound – and part of that research is to establish exactly what costs are covered by the levy in that particular complex.
These should include the following:
· All costs related to the security of the complex, including any guards, access control systems, fencing and surveillance equipment;
· The municipal charges for water and electricity supplied to the common property;
· The annual premium for comprehensive building insurance in the event of damage due to fire, wind, flood or other natural disasters;
· The costs of maintaining the common property including shared gardens, pools, gyms and recreational facilities, as well as day-to-day repairs where needed to exterior walls, roofs, driveways and passages;
· The costs of cleaning common areas such as lift lobbies and staircases as well as municipal rubbish removal;
· Any premium for public liability insurance in case any owner, tenant or visitor is injured on common property;
· Any fees paid to a managing agent and administrative costs for bookkeeping, accounting and legal services;
· Any amount required to keep the Reserve Fund topped up to the level required by law; and
· The annual contribution payable to the Community Schemes Ombud Service.
Zaslansky says these costs are usually all set out in an annual budget which has to be approved by the owners in a scheme before the total is divided among them according to their ownership percentages, and then broken down into the monthly levies payable.
“This is usually a very straightforward process that enables owners to see exactly what value they are getting in return for their levy payments - and prospective buyers to see how this compares to freehold ownership. But problems can arise that will boost levies to abnormally high levels, and these are what prospective buyers need to avoid.
“For example, due to poor management in the past, some complexes don’t yet have the legally prescribed minimum in their Reserve Fund and are obliged to charge owners an additional amount each month until they reach the required level.
In other instances, there is a special levy in place to repay the cost of a major emergency repair or improvement in the past that is being added to the normal levy payable each month.”
Levies could also be high, she says, if the complex went through a period when many owners did not pay their levies and the body corporate needed to take out a loan which the owners now need to pay back,
“However, such issues may only become apparent when you review the minutes of the complex’s AGM or the annual budget documents, which is why it is also imperative for prospective buyers in sectional title complexes and estates to deal only with reputable agencies that won’t try to hide any financial problems and will make sure you have absolutely all the information you need before making a purchase decision.”
Issued by Firzt Realty
For media inquiries contact
Denese Zaslansky on
082 560 1618 or
Stephen Whitcombe on
082 412 2949
Or visit www.firzt.co.za
About Firzt Realty
Established in 2003, Firzt Realty initially focused on residential real estate, but has since expanded to offer a broad range of services in both the residential and commercial property sectors, including sales, rentals, auctions and property management.