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New Property Practitioners Bill opens up lower-end buyers to more risk

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As the Property Practitioners Bill looks set to be signed into law early next year, industry experts have voiced their concern that it fails to adequately address the shortcomings in the current legislation.

Adopted by the National Assembly last week, the bill seeks to repeal the 42-year-old legislation of the Estate Agents Affairs Act by replacing it with a set of proposed new laws aimed at, among other things, increasing the participation of black practitioners in the sector, improving overall regulation and ensuring the protection of consumers.

One of the ways of improving access and opportunities for black people in the sector is through the establishment of a transformation fund that will be used to drive change by “facilitating the access of finance for property ownership, property development and investment”.

Renovating the old act, when rebuilding is neededdemolishing a house resize

In his assessment of the bill, the chief executive of the Real Estate Business Owners of South Africa, Jan le Roux, said lawmakers have missed an opportunity to take a fresh look at the industry and have instead only “renovated” the current legislation.

“It is equivalent to buying a derelict house and instead of demolishing it and building a new one, you end up with cracked walls, leaking plumbing, failure in electricity supply and a leaking roof,” he said, noting that the bill will disappoint because it is promoted as being transformative, yet it “does very little to enhance transformation”.

He argued the bill fails to show how the obstacles that currently inhibit new entrants into the market from establishing their own businesses and being successful, will removed.

“The bill favours large, established groups with infrastructure and resources versus new entrants starting new businesses,” he said. “Most new entrants will be black.”

Barriers to entry a double-edged sword for the sectorbarriers to entry

His comments were echoed by the Black Property Practitioners’ Association who said in their public submission that there were no provisions in the bill for poor black practitioners who could not afford to pay the expensive fees associated with participating in the industry.

One such expense that property practitioners face is accounting and auditing fees.

In terms of Chapter 4 of the bill, property practitioners with turnovers of less than R2,5m per year will be allowed to have their accounting records reviewed by an accountant instead of audited.

Though le Roux said this “appears to be a step forward” he admits it is “fraught with difficulty”.

Exemptions could enable abusefraud identity resize

Jan Cronje, managing director of audit, accounting and advisory firm Krona, agrees. He believes consumers will be better protected if property practitioners’ trust and business accounts had to be audited in terms of the bill, regardless of their turnover.

He said capping exemptions at R2,5m turnover opens up the system to abuse.

“The audits are there to protect the public, and people operating in that space will need the protection the most. It’s the lower income and small practitioners that fall into this bracket,” said Cronje. “The government should not go backwards and exclude certain entities from the audit. Then the fraud will happen again.”

Referring to Section 23 of the bill, Cronje believes all property practitioners should be equal before the law.


Here’s how to lodge a complaint against an estate agent

“My opinion is that they should not distinguish that only certain property practitioners be exempt,” he said. “For transparency and fairness all property practitioners should have a trust account and it needs to be audited.”

The chief executive officer of the South African Property Owners’ Association, Neil Gopal, said the requirement of maintaining trust accounts and having them audited on an annual basis was not only detrimental to the industry but is an additional cost to the practitioner who is “already battling in these trying times”.

“Thousands of agents will still be saddled with dormant trust accounts at huge and unnecessary expense,” agreed le Roux.

The bill will not only regulate the conduct of estate agents but also bond brokers, home inspectors and property managers.

Should property developers be exempt?stop development resize

But one controversial element of the legislation is the exemption of property developers from the broad definition of property practitioner as defined in the bill.

Le Roux believes it is “detrimental” that developers need not register with the authority and therefore will not have the benefit of their trust deposits being covered by the Fidelity Fund. The fund is intended to reimburse those who, in certain circumstances, have suffered loss due to theft of trust monies by estate agents”.

He said while estate agents must at least have an NQF4 qualification, developers can employ anybody without any qualifications to assist them in selling their properties. “This cannot possibly be to the benefit of the consumer,” he said.

Gopal stressed that consumers needed protection from property developers who practice as managing agents after a development is completed.

“One needs to draw a distinction between property developers who are mere developers and those that practice as managing agents,” said Gopal.

The focus on increased and improved regulation in the industry in order to protect consumers may have some unintended consequences.

slap in the face

Estate agency fined R25,000 for operating illegally

Both Le Roux and Gopal note the widened definitions of a “property practitioner” to include every entity remotely related to a property transaction which will saddle the new Property Practitioners’ Authority (the old Estate Agency Affairs Board) with more responsibility while it is not even coping at the moment.

“One should keep in mind that thousands of illegal agents are operating at the moment, yet the authority will now have a bigger responsibility to regulate even more individuals and entities,” said le Roux.

Words: Greg Rule


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