An opportunity has arisen in the property sector to pluck some "low-hanging fruit" and meaningfully deal with the triple threats of unemployment, lack of transformation of the economy and disintegrating infrastructure.
The asset value of the property sector is massive: in 2016, the Property Sector Charter Council put the sector’s value at R5.8-trillion. Of this, the formal residential portion (homes registered at the Deeds Office) is by far the biggest, worth R3.9-trillion (6.1-million registered homes).
Several initiatives now present a real opportunity to make a significant difference by creating thousands of new jobs, transforming the profile of the sector and preserving SA’s crumbling property assets:
• The Property Practitioners Bill was published for comment in March 2017 and is winding its way via public hearings towards Parliament. The bill has the laudable objectives of transforming the racial profile of the real estate industry while radically improving consumer protection for home buyers;
• New regulations for the Sectional Title Schemes Management Act of 2011 tackle the issue of neglected maintenance of many sectional title schemes; and
• A new national building inspector qualification is expected to be accredited in 2018. This qualification will provide training benchmarks for inspectors employed in the public and private sectors. The development of the qualification has been supported by a task team of experts drawn from powerful industry players including the Banking Association SA, various municipalities, the National Home Builders Registration Council, the National Association of Building Inspectors, the South African Home Inspection Training Academy and the National Regulator for Compulsory Specifications. The qualification has the potential to create many new jobs, raise standards in the construction industry and improve consumer protection for buyers of existing homes.
The Property Practitioners Bill is being driven by the Estate Agency Affairs Board which, like the National Home Builders Registration Council, falls under the Department of Human Settlements headed by Lindiwe Sisulu. The idea is to replace the inefficient and largely ineffective Estate Agency Affairs Board – much resented by most estate agents – with a new body, the Property Practitioners Regulatory Authority.
Home inspections
Home inspectors, together with estate agents and many other categories of people operating in the sphere, will be regulated by the authority. Regulating (and thereby recognising) home inspectors is expected to boost the struggling independent home-inspection industry.
Independent home inspection in SA is far behind international norms. In the litigious US, for instance, the home inspection industry has an 80% market penetration, largely because realtors choose to protect themselves from comebacks by recommending to buyers an independent inspection each time an existing home is sold.
In SA, because of loopholes in the Consumer Protection Act of 2008, most existing homes are still sold voetstoots, sans inspection.
Voetstoots (as is) property sales place the buyer at significant risk. HouseCheck, SA’s largest independent home inspector, estimates that less than 1% of existing South African homes are checked by an independent person as part of the sales transaction.
This is obviously a real risk, especially for SA’s high number of first-time buyers of suburban homes — mostly younger people with good jobs who qualify for bonds and older people downsizing.
The law requires that all secondhand cars get a roadworthy certificate when sold, yet often naïve buyers of second-hand homes make a far bigger investment with very little protection. Some buyers believe the valuation a bank does before granting a bond protects the buyer from buying a seriously defective property. Not so.
Industry sources say up to 60% of mortgage loans on existing homes are bonded by banks without a site visit — only a desktop valuation. The percentage varies from bank to bank, but increasingly only high-risk loans result in the bank requiring a site visit.
This is because banks are under growing cost pressure because their origination fee (which covers administration, valuation and bond originator commission) is limited by the National Credit Act.
While welcoming the Property Practitioners Bill, estate agency owners, the Banking Association SA, the building inspectors association and audit and legal professions have also recommended changes to the bill.
One problem with the bill is that all the role players, whom the draft legislation defines as "property practitioners", have been thrown into one pot and are treated the same.
The bill defines property practitioners in a catch-all basket to include estate agents, home inspectors, bond originators, property auctioneers, rental agents, managing agents, business brokers, bank valuators, time-share sales people and virtually everyone else involved in any way in providing services connected with the sale or lease of a property or a business.
Densification policies, security issues and basic economics have resulted in a swing away from freehold homes to community schemes. A community scheme is an arrangement where the use and responsibility for parts of land and buildings is shared. Sectional-title and housing schemes for retired people increasingly dominate the development landscape. Absa says that in the 20 years since 1995, apartments and townhouses have made up 27% of newly completed buildings funded by the bank. For the three years from 2012-15, 63% of all residential development units financed by Absa were sectional-title units – a trend it expects will continue.
But a great many sectional-title schemes are in serious trouble, plagued by mismanagement, insolvent body corporates and poorly maintained properties. This poses significant risk to unit owners and to prospective buyers of such units.
The Sectional Title Schemes Management Act regulations are the government’s serious attempt to right the sectional-title ship and so protect unit owners. The new rules require:
Trustees to devise a properly funded 10-year maintenance plan for all common areas of the sectional-title property;
Audited financials for schemes — auditors are required to verify the maintenance plan; and
A sector ombud to police the act has been appointed in terms of the Community Schemes Ombud Service Act, 2010.
Trustees will now be forced by the sector’s auditors and by the newly created ombud to embrace finance probity and devise plans to maintain the assets under their control.
In practice, maintenance budgeting is not possible without an annual inspection/ condition assessment of the property as a base line for the plan. These new sectional-title rules will create many job opportunities for trained inspectors and for the building industry charged with doing the maintenance required.
The essential work of a building inspector is to quality-control new building work and assess the condition of existing structures. To perform this task, the inspector needs a good knowledge of all aspects of the building envelope.
The Quality Council for Trades and Occupations has authorised the development of the building inspector qualification, which is being funded by the local government sector education and training authority.
There is a serious shortage of local government building inspectors. About half of smaller municipalities do not employ legally competent building control officers — officers compliant with the requirements of the National Building Regulations and Building Standards Act 1977.
Benchmarked Training
Taken together with the decision of the Department of Human Settlements to extend National Home Builders Registration Council warranties to low-cost housing, there is now a huge demand for trained inspectors in the public sector. The council is already reportedly at an advanced stage of outsourcing all or part of its inspection work.
A benchmarked training for South African building inspectors is key to employing large numbers of suitably qualified people, to improve consumer protection in the property sector and exploit the large number of job opportunities to be created by the bill and the Sectional Title Schemes Management Act.
The building inspector qualification will provide training from National Qualifications Framework levels 5 to 8 and will be suited to providing a career path for matriculants and people already working in the building industry. Up to 10,000 new jobs for trained building inspectors could be created by the municipalities, the National Home Builders Registration Council and by the private sector.
The building inspection industry could also be the thin end of the wedge that is needed to start the racial transformation of the real estate industry — once estate agents are obliged to recommend independent home inspection.
• Graham represents the National Association of Building Inspectors of SA.
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