If you buy a freehold home in an estate or any other gated development, the future value of your property will depend very heavily on how well that development is managed by the Home-Owners’ Association (HOA) and its directors.
“And on the one hand that is one of the major advantages of buying in an estate rather than an ordinary suburb where one is dependent on the local authority for services and there is no real control over the appearance or maintenance of individual properties,” says Gerhard Kotzé, MD of the RealNet estate agency group.
“On the other, however, it means that you need to make sure the HOA is functioning well and can continue to protect and enhance the value of all the homes in the estate by providing excellent security, maintaining all communal spaces and facilities and making sure residents stick to the original architectural guidelines.
He says it is particularly important for those who are buying new homes during SA’s Covid-19 lockdown not to forget all the normal precautions, and that those who are considering purchases in established estate should thus first do the following:
* Establish the percentage of owner-occupants in the community versus the number of tenants. “There is a good reason that banks are often more reluctant to grant loans to prospective buyers in developments where more than a third of residents are tenants. They know from experience that resident owners are more likely to take care of their properties, and the communal areas and facilities, than tenants or landlords who don’t live in the community.
“And the market value of property is directly related to the availability of financing. No loans will mean falling values.”
* Ask to see the current assessment/ levy collection record and find out what percentage of owners are 90 days or more in arrears with these payments. Kotzé says that if the percentage of delinquent owners is high, it means the HOA does not have an effective collections policy or procedure and, quite simply, that things are set to get worse as defaulters get away with non-payment.
“Levy funding is the only money the HOA has to pay for maintenance and security and if this is not available, the value of all homes in the estate will be threatened as it becomes increasingly run-down.”
* Find out if the HOA has a stated reserve fund requirement and how much it has in this account. Such a fund is vital to cover “planned maintenance”, that is the predictable costs of repairing or replacing certain communal assets without having to raise special levies, and contributions should be included in the monthly levies paid by owners, he says.
“A well-run community will have more than 75% of the reserves it needs in the bank, and lower levels generally spell trouble because necessary repairs and replacements are likely to be deferred, once again to the detriment of property values in the estate.”
This article was written by the EstateMate in house media team. We are a tech passionate group of people driven by our love to revolutionize the Property Tech space.