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Tuesday Dec 18, 2012

Failing to pay levies can create a vicious cycle

Effective financial planning is essential in the running of sectional title schemes and bodies corporate, as any budget shortfalls can have dramatic effects on the schemes and the people owning and living in them.

Johann le Roux, executive director of Propell, says that bodies corporate need to establish realistic working budgets to ensure that they can fulfil their monthly obligations throughout the financial period.

"This may sound simple in principle, but it's not as easy in practice. Many factors need to be taken into account when preparing healthy budgets. These include spikes in municipal accounts, for instance electricity increases, unexpected maintenance, such as burst pipes or geyser replacements, and maintenance budgets," says Le Roux.

"All bodies corporate should strive to create surplus funds through the budget for property maintenance and upgrades. However, this is not always possible and schemes can end up suffering as property maintenance falls behind while the cost grows yearly.

"Non-maintenance leads to deterioration, which lowers the value of the scheme's property - not an ideal situation for owners. Even for investors in sectional title schemes, this often leads to drops in rental returns as this chain of events encourages tenants to look for alternative accommodation."

Setting the perfect budget, however, does not in essence mean having cash in the bank. The levy income needs to be received to ensure the payment of expenses. This is often a major stumbling block for bodies corporate, especially in the current economic climate, where t he non- payment of levies is a common occurrence.

"When levies aren't paid, monthly expenses cannot be met. In a worst-case scenario this could lead to municipal services being cut for the entire scheme," says Le Roux.

"Levy income and cash flow are the lifeblood of any body corporate. Companies such as Propell can assist bodies corporate that are in financial distress."

Propell Press Release

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