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Will CSOS put small managing agencies out of business?

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Some industry players are concerned that the Community Schemes Ombud Services (CSOS) Act could potentially negatively impact on scheme management and indirectly prejudice property owners.

We spoke to Grant Smee, MD and franchisor of Only Realty, who believes that, although the CSOS brings some much-needed regulation to the industry, it may have a negative impact on business, specifically the smaller managing agencies and potential new entrants into the market.

“I am of the opinion that the additional regulations and administrative requirements might drive smaller players to leave the industry,” he says. “As these regulations increase and income per unit remains static, or even decreases due to a highly competitive market, managing agents will find it difficult to pass on the cost to the price-sensitive property owners, inevitably seeing their profit margins shrinking.”

According to Smee, if an agent is not forced to leave the industry they may decide to diversify their offering to make ends meet and ultimately impact on the level of service the customer receives.

Either scenario does not bode well for the property owner. “If the larger managing agencies dominate the market as a result of smaller players exiting, these larger players will dominate the market from a pricing as well as service level perspective,” explains Smee. “At the same time, managing agencies forced to diversify into other income generating areas will most likely impact on their ability to provide the same quality service level.”

Andrew Schaefer, MD of property management company Trafalgar, one of the biggest agencies in South Africa, says that Trafalgar does not agree with the premise that increased administrative and regulatory requirements could potentially cripple smaller managing agencies.

“We’ve submitted all of our clients’ registration documents by the deadline, the system requirements for the arrear levies collection can all be automated, as can billing requirements,” he says. “The core regulatory requirements should not be a problem as long as the agency is aware of what will be expected and has the systems and automation requirements in place.”

Careful monitoring required

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Schaefer adds that what his company believes could potentially be a concern is the time commitment in terms of disputes submitted to the CSOS.

According to Schaefer, Trafalgar anticipates having to staff-up. “We will probably hire a paralegal to attend the dispute hearings to fulfil any attendance requirements,” he says. “At this early stage it is not clear what the time commitment will be but I believe it will have an impact on the manpower of managing agencies and should be carefully monitored by all players over the next couple of months.”

Trafalgar plans on covering the costs related to the extra time commitment by charging the client on an hourly basis should their services be required for a dispute. As stated by Schaefer, Trafalgar believes that the business impact on industry players, small and big, should therefore be minimal. As long as time commitments are monitored and adequate planning and system automation is in place.

But then, as argued by Smee, many consumers are very price sensitive. Will all managing agencies be able to recover the cost of increased time and manpower needed as a result of attendance requirements at dispute hearings?

Whether agencies are caught unprepared and unable to handle the core administrative and regulatory requirements, or whether it is a human resource drain as a result of the attendance requirements at dispute hearings, it seems that there are potentially some risks for managing agents if they don’t pay attention; this could also ultimately negatively impact the property owner.

Arguably more concerning is the unintended impact this might have on the core reason for the existence of the CSOS. We would argue that a cash-strapped property owner might be loathe to log a dispute with the ombud service if they know that this will entail an additional charge, on top of the increased levy and managing fee they are already paying.

The problem here is not that managing agencies are preparing to ask more to cover professional services provided during a dispute process, to the contrary we would be worried if a business person did not think like this. The concern is that the time and attendance requirement set by the CSOS to fairly serve its purpose might indirectly be the very reason its intended market opts to not use the dispute resolution service.

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ungerermariette@gmail.com

Mariette Steynberg is a qualified economist with a post-graduate diploma in financial planning. She has enjoyed working on holistic financial plans for clients in various stages of life, as well as a development economist assessing the socioeconomic impacts of new developments. When she is not working, Mariette enjoys parenting her quirky, delightful toddler girl. Cloth diapering, Eskimo kisses and the importance of reading to your child are all causes close to her heart. Mariette is passionate about financial education and hopes to use the experience she has gained to share knowledge with HomeTimes’ readership. Her goal is to provide information that is implementable by everyone.

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2 COMMENTS
  • Tommy 27th November 2016

    We Have Had a managing agent looking after our Sectional Title scheme now for 4 years and the Block is going backwards.It is a disgrace to see how the funds are misspent on the maintenance and the agent has no idea how to arrange to be properly maintained.
    When i challenged them they gave notice to cancel the contract.We also have another owner who is a managing agent and feel this is also the problem for the way the block is run.They nominated themselves as trustees.
    Now the other agent is pushing to take control of block.
    As usual the other owners have no idea what to do ,do not attend meetings only send proxy vote,and work is left up to the white people to sort out the problems.
    The value of the property is decreasing and the costs are increasing.
    What should we do .

    • Grant Smee 8th December 2016

      Tommy, it is essential that a Managing agent is selected for the block that has a good track record, is properly registered and has references that can be checked. There are hundreds of managing agents in the market to choose from, often it is tempting to select the cheapest quotation, but in my experience this could the the most costly option in the medium to long term. Finally, it is important to have a managing agent that is independent to the building. This ensures they can discharge their duties without fear of bias or questions of independence.

      I would advise contacting a Sectional Title expert for some guidance to resolving the issues you are experiencing.

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