Sectional title industry has cashflow crises

“The South African sectional title industry is in a state of disarray because the members of bodies corporate all too often fail to pay their monthly levies. The industry consists of almost 60 000 schemes which comprise over 800 000 individual sectional title units and at any stage some 20% are behind in their levy payments,” says Charles Coetzee, MD of Stilus, the new levy insurance policy launched by Santam.

Bodies corporate, Coetzee reminds us, are solely dependent on their income from levies and in SA today these total R8 billion per annum. At any one stage the amounts in arrears come to approximately R1,5 million.

“As has been publicised, when levies in this industry go unpaid, bodies corporate are unable to meet their creditors’ demand, particularly those of municipalities for services such as electricity, water, refuse removal and sewerage. This, in the end leads to these being cut off.

“Furthermore, when bodies corporate are short of funds, they often cut back on the maintenance of their properties, which then rapidly degenerate and lose value.

“Any non-payment of levies is, therefore, potentially a prelude to the financial collapse of a sectional title scheme and the loss of massive investment by owners.”

The Stilus policy, said Coetzee, is designed to prevent this happening and ensure that schemes appreciate in value.

“Tertius Maree and myself, both specialists in the sectional title industry (each of has forty years experience body corporate management) in July this year finalised negotiations with Santam (South Africa’s largest and most well known short-term insurer) to register a new generation underwriting management agency, Stilus (an acronym for Sectional Title Insurance Levy Underwriting Security) – and this has the potential to bring to the sectional title industry the liquidity it so urgently needs.”

Provided their claims are legitimate, bodies corporate insured with Stilus can rest assured that members’ unpaid levies will be settled within ten days, says Coetzee.

The bodies’ corporate arrear levies will be subrogated by Stilus, who will take full responsibility for collecting them from the defaulting members at no cost to the bodies corporate – a fact still not widely known by many trustees.

Stilus has now been marketed for eight weeks and the response, says Stilus marketing director, Michael Garvin, has been “remarkable”. Stilus policies either sold or under negotiation now amount to almost 2% of the entire sectional title industry.

Bodies corporate can only purchase Stilus through insurance brokers already accredited to Santam or registered with Stilus. But, says Garvin, body corporate managing agents now back the policy and have worked with insurance brokers to promote Stilus to their trustees.

“The current disastrous credit and liquidity problems in the sectional title sector could, I think, take five years to overcome – but we are now on a recovery path. By having guaranteed cash flows, body corporate trustees can often for the first time pay their creditors on time, maintain their properties adequately and prevent their losing value – and all of these benefits are available at a cost of only R10 to R15 per month per member – less than the price of a cappuccino.”

The new Stilus policy, says Coetzee, dovetails well with Santam’s “World of Certainty” campaign, the aim of which is to reduce its clients’ risk profiles and increase their peace of mind.

“I have been in property long enough to know that every now and then an innovative new system or strategy can transform a sector. Stilus can do this for sectional title – it marks the start of a new era.”

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