Zuma shakes up the estate agency industry

Zuma shakes up the estate agency industry

President Jacob Zuma has issued a proclamation switching control of the Estate Agent’s Affairs Board (EAAB) to Tokyo Sexwale, Minister of Human Settlements. Previously control and administration of the EAAB fell under the Department of Trade and Industry, which is also responsible for the Consumer Protection Commission.

 In two related developments:

  • Sexwale told Parliament recently that the government was considering the establishment of a State owned construction company as a reaction to the widespread problems caused by bakkie builders operating in the low cost housing market.
  • Minister of Trade and Industries Rob Davies has gazetted a new BEE code for the property sector in terms of which property developers will have to direct 10 per cent of new development investment into “under resourced areas” and estate agencies will have to embrace black shareholding going forward. Estate agencies and other players will have to allocate 35% of equity to black investors when selling off shareholding in their companies. Davies said that this was to give “as many estate agencies as possible an opportunity to contribute towards the transformation of the sector”.

John Graham, CEO of home inspection company, HouseCheck, has welcomed these developments. He said the real estate industry was characterised by entrenched interests and traditional practices such as high commissions and the use of the voetstoots clause which often resulted in the consumer/buyer being placed at a disadvantage. Graham said that the housing market was ripe for a shake-up which should be aimed at achieving greater transparency and greater accountability by banks, developers, estate agencies and builders.

Graham called for the Consumer Protection Act to be amended so as to ensure that all private sellers, as well as estate agencies, could be held accountable for serious undisclosed defects in second hand houses being sold.

He added that the home inspection industry should be regulated and pre-sale inspections of second hand homes should become mandatory, once regulation had been achieved.  He pointed out that in the US, although home inspections were not mandatory, the inspection industry was tightly regulated and enjoyed great consumer confidence with the result that eight out ten homes were inspected pre-sale. This resulted in the US  real estate industry being very transparent and accountable.

While it is not yet clear what effect this take-over of the EAAB by the housing ministry will have, Tony Clarke, MD of Rawson Properties , says that he is “concerned”. Clarke has called on Sexwale to convene an urgent meeting of real estate leaders to discuss the way forward. He points out that the estate agency industry is a major player in South Africa and adds that the “middle and upper class housing sector” is responsible for 9 per cent of South African GDP. Clarke says on the Rawson Property website that there is also a fear that the EAAB fidelity fund might be drawn on by human settlements for other purposes.

The EAAB is currently involved in at least two legal tussles with major real estate agencies. Prominent Johannesburg estate agent Wendy Mechanik has been charged with fraud, while the EAAB is seeking High Court permission to search and sieze Auction Alliance documentation. Auction Alliance founder, Rael Levitt recently resigned after the Consumer Protector began to investigate his company’s auction practices.

Meanwhile Sexwale has informed Parliament that the Department of Human Settlements was considering establishing a state-owned construction company. Sexwale said the government housing programme relied “by and large” on inexperienced shovel, wheelbarrow and the bakkie brigades. “Many of these discredit the good name of genuine and committed small to medium emerging contractors,” he said. He said that a lot of fly-by-nights take the taxpayer to the cleaners with their shoddy workmanship.

Sexwale said the department was a key player in the property market, with a recent study finding that 1.44 million of the six million registered residential properties in the Deeds Registry were government subsidised. This represented 24% of the total number of registered residential properties. Sexwale said this could increase to 35% if the backlog in issuing title deeds was overcome.

The department, he said, would focus on low cost housing construction projects in its attempt to root out corruption and maladministration. More than 50 housing projects, valued at R4.2bn, had been identified as the targets of an investigation, Sexwale said.

Clarke says that the take-over by Sexwale’s housing ministry of the EAAB was “a radical move and one which will have a far reaching impact.

“We who work in the estate agency sector are obviously concerned that the body now controlling us has other agendas and other foci. Human Settlements’ task is affordable and sub-economic housing. The question now being asked is, “Are they equipped to deal with the issues that affect the formal, basically middle class, housing development buying and selling industry? It is worrying that this big change has been made without, so far as I know, any consultation with the leading figures of our industry.”

Despite this criticism, said Clarke, the change may be beneficial in the long term.

“Tokyo Sexwale, who controls Human Settlements, has a well-earned reputation as a mover and shaker – a leader who accomplishes things. He may be what we need. If the truth be told, few of us in this sector have been satisfied with the way in which the Department of Trade and Industry and its Estate Agency Affairs Board have administered us.”

For years, said Clarke, the EAAB had been “ineffective”. Although they had garnered credit for the new training/educational initiatives now compulsory in the sector, they had not, he said, been nearly as involved here as they should have been.

 

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