Why low levies might be a red flag

A low sectional title levy is not necessarily a good thing. What do low levies point to?

Units

As a prospective buyer of a sectional title unit, one of the first questions you need to ask an estate agent is how much the monthly levies are for the complex.

Many buyers looking at luxury apartments in sectional title complexes are shocked by the high levies. The levies generally cover the cost of all the external maintenance of the building, the upkeep of lifts, the gardens, the communal property, the gates, security and more.

To judge whether or not levies for a particular sectional title scheme are excessive, you should calculate what it costs to live in a freestanding house of the same quality. You need to include the cost of all the necessary services such as garden and swimming pool maintenance, landscaping, electric fencing and a security guard at the gate.

Once you have totalled all of these costs, you should see why the high-seeming levies are necessary. The benefit for a sectional title buyer is that you get all the extras while paying only a portion of the monthly running costs.

Too low

The most common reason for a complex having low levies is that the body corporate has not done the necessary financial planning for the year ahead. Therefore, low monthly levies may sound promising to a prospective buyer. However, it can mean that a special levy has to be raised unexpectedly to get much-needed repairs or maintenance done.

A low levy could also mean that some critical maintenance issues are neglected because there are no funds available for repairs. This could result in an overall loss of value of the complex – and all units in the complex.

This issue is particularly pertinent when looking to buy into an older complex, where more maintenance is almost certainly necessary. Also, the replacement of certain large budget items – such as a lift – might have to be budgeted for in the near future.

Financial health

When looking to buy, you need to assess a sectional title scheme’s financial health carefully.

You should ask the agent for copies of the financial statements for the past two years and check whether levies are being put to good use.

Red flags could include:

  • Little or no allowance for maintenance and upkeep.
  • Very low staff salaries.
  • Large sums paid to trustees for unexplained expenses.
  • Large sums under ‘Miscellaneous expenses.

If you are applying for a home loan, your bank will also ask to see the latest financial statements of the complex before considering your application.

If you have any doubts about the financial status of a complex, it is better by far to walk away rather than risk your dream home turning into a financial nightmare.