Body corporate’s financial statements

Over and above the structural integrity of a building, when buying into a sectional scheme there are a number of elements that should be inspected closely to make a good investment.

March 3, 2016

There is often a great deal of emphasis placed on the physical structure of a house and identifying any defects before purchasing a property in order to make an informed decision about the investment opportunity. But when buying a sectional title property, there are a number of additional elements to inspect before making the final decision.

Buying into a sectional scheme can be likened to entering into a form of joint ownership. Although you will own your section wholly, the common areas are owned jointly with all other sectional owners and management of the scheme, including the responsibility of maintaining the building structure, is shared by all owners (although in practice, often managed by selected representatives). In addition, all sectional schemes will have rules and regulations, as agreed by existing owners that must be abided by.

As such, it is incredibly helpful to read the body corporate rules as well as the latest AGM minutes. These documents will give a prospective buyer the necessary information regarding the rules that must be followed after becoming an owner/tenant as well as any recent resolutions that have been passed. This information is important since it is possible that certain regulations may not fit with the prospective buyer’s plans or needs and as a result, an informed decision can be made regarding whether to proceed with the purchase or not.

There are also financial considerations to bear in mind. As mentioned, the maintenance of the building and grounds is the joint responsibility of all the section owners, and this includes the costs associated with the property maintenance and upkeep.

The way in which these costs are covered is through monthly levies being paid by each owner. On occasion, though, if the maintenance costs exceed the amount saved or if there are unforeseen renovations to be carried out for which there are not sufficient funds, the owners will have to pay what is known as a special levy to cover these additional costs.

Although there is no way to determine with complete certainty whether a special levy might be imposed in the future, examining the most recent audited financial statements of the body corporate can offer useful insight into the financial management of the scheme. This financial statement should be made available to interested buyers upon request and will include information regarding funds currently saved as well as expenses incurred. Based on this information, one can determine the financial integrity of the sectional scheme and whether buying into it will be a good investment or will likely result in additional expenses being incurred through poor management or negligence.

While there are seldom clear-cut answers about whether buying a particular property is a good investment or not, equipping yourself with as much information as possible will provide the best chance of making a financially wise investment.

Written by Wessel de Kock

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