21 Feb 2013
There is an increasing new threat rearing its head in residential property investment, specifically complex properties - the liquidity of the complexes financials.
Complex ownership requires all owners to contribute to the running costs of the complex and common area costs as well as the municipal costs of electricity, water, sewerage and refuse removal.
The last five years have been difficult for consumers: the cost of living has gone up, more people are out of work, and the recent Credit Bureau Monitor points to nearly one in every two consumers having impaired credit.
Not surprising, levy collection has also deteriorated. There are an increasing number of complex owners who are simply not contributing towards their levy.
The complex still has a duty to meet its monthly expense payments and this puts a burden on the complex to find cash flow.
Many complexes have already metered out special levies in an effort to keep the complex liquid, of course this just means the paying owners are contributing more and the non-paying owners continue doing what they have been doing: just not paying.
It has been widely reported that there are a number of managing agents tasked with managing, among other things, the financial affairs of complexes who have been operating without the necessary Fidelity Fund Certificate and who have been interdicted from operating.
There are non-reported cases of smaller managing agents not making media coverage, and the prevalence of mismanagement is probably much higher than the few high profile cases indicates.
In some cases certain complexes are literally bankrupt; no audited financial statements have been performed for years.
The ramifications are serious, special levies aside and deteriorating maintenance due to a lack of funds put the complex's insurance policy at risk.
Selling properties in these complexes is nearly impossible and financial institutions will not lend to prospective buyers in these complexes.
The Tenant Profile Network Credit Bureau has always been of the belief that a property investor is an active participant to the success of his investment: actively managing his tenant either directly or through his chosen estate agent; and equally important, actively participating in the success of the management of the complex.
In order to help ensure the ongoing sound financial prospects, investors should confirm annually that the estate agent, who is tasked with managing tenants, as well as the managing agent, tasked with managing the complex, have both been issued their current annual Fidelity Fund Certificate.
It is also a wise decision to attend the Annual General Meeting of the property owners and get actively involved with the voting processes and trustee communications.
For extra security it is also prudent to review the complex’s audited annual financial statements.
Following procedure and getting an indepth, holistic view of all aspects of a potential property investment will help make the difference between a good return and an unnecessary loss. - Michelle Dickens
Michelle DickensMichelle Dickens is the managing director of Tenant Profile Network (TPN) a registered credit bureau . Its database combines information from TPN and other highly valuable sources, such as Experian and TransUnion, to provide the most comprehensive behavioural profiles on tenants and prospective buyers in the property industry today.
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