Financial planning for sectional title

13 Dec 2012

Financial planning seems to be a buzz word we hear and see everywhere and sectional title schemes and bodies corporate are definitely not immune to this. Sound financial planning for these schemes is of the utmost importance, as any shortfalls on the budget can have dramatic effects on the scheme and the people owning and living within it. 

Bodies corporate need to establish a realistic working budget to ensure they are able to fulfil their monthly obligations through the financial period, says Johann le Roux, Executive Director of Propell.

Bodies corporate need to establish a realistic working budget to ensure they are able to fulfil their monthly obligations through the financial period, says Johann le Roux, Executive Director of Propell. “While this may sound simple in principle it is not as easy in practise, many factors need to be taken into account when preparing a healthy budget.” 

Budgets can be very difficult or uncertain due to factors as such: 

- Municipal spikes (electricity increases)
- Unexpected maintenance (burst pipe, geyser replacement, etc.)
- Future maintenance budgets 

“Creating a surplus fund through the budget for property maintenance and upgrades is something all bodies corporate should strive towards achieving, however, in reality this is sometimes not possible and the scheme can end up suffering as property maintenance falls behind whilst the cost to do so grows on a yearly basis,” says le Roux. 

Non-maintenance leads to deterioration and this in turn lowers the value of the scheme's property, which is not an ideal situation for owner occupiers. Even for investors in sectional title schemes, this often leads to drops in rental returns as this chain of events leads to tenants generally looking for alternate places to stay. 

Having set the perfect budget, in essence does not mean cash in the bank - the levy income needs to be received in the form of cash to ensure physical payment of the expenses. This is often a major stumbling block for bodies corporate due to the current economic climate, with non-payment of levies being a daily occurrence. 

The reality of the non-payment of levies is that monthly expenses cannot be met and this in a worst case scenario could lead to municipal services being cut for the scheme. 

Levy income/cash flow is the lifeblood of any bodies corporate and there are now companies that are able to assist bodies corporate that are in financial strain, says le Roux.   

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