Levies are something that takes up a lot of mental bandwidth when people are looking to invest in property, with the amounts charged varying significantly between different complexes and estates.
It’s understandable that you would want to pay a lower levy, but what matters most is not the amount of the levy but rather what you get for it. In our latest blog, we’ll be taking a look at what levies are and how to assess whether they are too high, suspiciously low, or just right.
What is a levy and why must I pay it?
In sectional title schemes, all owners are required to pay a levy for the upkeep of ‘common property’ – that is, any areas or facilities beyond the walls of individual properties. Legitimate uses of levy funds including maintenance projects and service contracts for shared facilities such as walkways, security systems and swimming pools.
Levies are also used to pay for the management, administration and insurance costs relating to these areas. Levies are calculated on a ‘participation quota’ – that is, they are based on an amount per square metre. If you own a larger property, you can expect to pay proportionately more than someone else in the same complex who owns a smaller property.
Check the line items
When you receive your levy statement, it’s worth spending a few moments making sure that you’ve understood all the different items that you’re being charged for. These could include ‘effluence’ (a more fragrant word for sewerage) which is collected on behalf of the municipality, and the ‘CSOS levy’.
This last item is usually very small, but potentially important: it’s a mandatory contribution towards funding the regulatory council for homeowners’ association and body corporates in South Africa. CSOS is an ombud scheme that exists to resolve disputes between these organisations and individual owners.
You may also be asked to pay a ‘reserve levy’ – as its name suggests, that’s an amount set aside for additional repairs and maintenance.
Things to watch out for
If you’re considering purchasing a property in a particular estate, it’s important to look at two key factors: the physical state of the common property (both in terms of what is there, and how well-maintained it is) and the level of the reserve funds held by the body corporate or homeowner’s association.
Red flags include a high levy but limited or poorly maintained facilities, or a reserve fund that is depleted or even running a deficit.
This brings us back to the point about comparing apples with apples. A low levy might not be such a good thing, as typically, you get what you pay for. In a ‘bare bones’ complex with no landscaping or pool, a low levy could well be appropriate.
Equally, a high levy might not be a bad thing – if you want to live in a beautifully landscaped estate with premium facilities such as a clubhouse or golf course, you should expect to pay more for the privilege. While there are no standard levy rates, a good rule of thumb would be around R20 per square metre if you live in a secure estate.
Know your rights
As a homeowner, you owe it to yourself to stay informed about the finances of the sectional title scheme you live in. This includes being aware of what contracts are being signed, for how much, and crucially, with whom.
Sadly, some trustees may be tempted by the prospect of getting a kickback on a contract; homeowners however have the right to place restrictions on the scope and nature of such contracts to avoid the perils of nepotism and cronyism.
What about special levies?
These can be raised for one-off projects but must be agreed by all owners, and then only after agreed budgets have already been spent. If the scope of a special levy falls within the budget, it can be raised immediately. Examples of the need for a special budget might include major projects such as adding security cameras or replacing car ports.
Good to know
It’s important to reiterate that a high levy doesn’t necessarily mean that you are being overcharged, but nor does a low levy necessarily mean that you are getting good value. It’s best to think of your levy as another form of investment in your property. As such, you should look not only at what you’re spending, but what you get in return.
When choosing a complex or estate to live in, bear in mind these three factors: the amount of the levy; the facilities available and the state they are in; and the estate’s overall financial position.
Always here to help
For advice and insights on assessing levies and determining which offers the best value, email mailto:terry@reeflords.co.za. Don’t forget to check out our Facebook, Instagram and LinkedIn pages – Reeflords Property Development.
Think home. Think Reeflords.
Share this article
