Job Creation in the property sector – Picking the low hanging fruit

John Graham (National Association of Building Inspectors of SA) Aug 2017

Within the giant property sector an opportunity has arisen to pluck some “low-hanging fruit” and meaningfully address the triple threats of unemployment, lack of transformation of the economy and disintegrating infrastructure.

The asset value of the property sector is massive:  Last year the Property Sector Charter Council put the value of the sector at R5.8-trillion.  Of this, the formal residential portion of the sector (homes registered at the Deeds Office) is by far the biggest – worth R3.9-trillion (6.1-million registered homes).  Much of the country’s low-cost housing stock and all unregistered homes in the former homelands are excluded from this number.

Several initiatives now present a real opportunity to make a significant difference by creating thousands of new jobs, transforming the profile of property sector and preserving South Africa’s crumbling property assets.

• The Property Practitioners Bill (PPB), was published for comment in March 2017 and now winding its way via public hearings towards Parliament. The PPB has the laudable objectives of transforming the racial profile of the real estate industry while radically improving consumer protection for home buyers.
• New regulations for the Sectional Title Schemes Management Act of 2011 (STSMA) address the issue of neglected maintenance of many sectional title schemes.
• A new national building inspector qualification (BIQ) is expected to be registered next year.  This BIQ will provide training benchmarks for inspectors employed in both the public and private sectors.   There is currently no officially accredited training available for South African building inspectors.  The development of the BIQ has been supported by powerful industry players including the Banking Association, Local Government Seta and various municipalities, the NHBRC (National Home Builders Registration Council), NABISA (National Association of Building Inspectors) and SAHITA (South African Home Inspection Training Academy).   The new BIQ has the potential to create many new jobs, to raise standards within the construction industry and to improve consumer protection for buyers of existing homes.

Property Practitioners Bill

The PPB is being driven by the Estate Agency Affairs Board (EAAB) which, like the NHBRC, falls under Minister Lindiwe Sisulu’s Department of Human Settlements.  The PPB, which is being fast-tracked, has the twin objectives of transforming the real estate industry and improving consumer protection for home buyers.

The idea is to replace, the inefficient and largely ineffective EAAB – much resented by most estate agents – with a new body the “Property Practitioners Regulatory Authority” (PPRA). Home inspectors, together with estate agents and many other categories of people operating in the real estate sphere, will be regulated by the PPRA.   Regulating (and thereby recognising) home inspectors is likely to give a real boost to the struggling independent home inspection industry in South Africa.

Independent home inspection in South Africa lags way behind international norms.   In the litigious US for instance, the home inspection industry enjoys an 80 per cent market penetration, largely because realtors choose to protect themselves from comebacks by advocating  to buyers an independent inspection each time an existing home is sold.

In South Africa, because of loopholes in the Consumer Protection Act of 2008, most existing homes are still sold voetstoots – without being inspected.

Voetstoots (as is) property sales place the buyer at significant risk. HouseCheck, South Africa’s largest independent home inspector, estimates that less than 1 per cent of existing SA homes are checked by an independent person as part of the sales transaction.

This is obviously a real risk, especially for South Africa’s high number of first time buyers of suburban homes – younger people with good jobs who qualify for bonds and older people down-sizing.

The law requires that all second-hand cars must get a roadworthy certificate when sold, yet often naïve buyers of second hand homes make a far bigger investment with very little protection.

Some buyers naively believe that the valuation a bank does before granting a bond protects the buyer from buying a seriously defective property.  Not so.

The main concerns of any mortgage bond lender is to firstly ensure that the borrower is credit-worthy and is able pay the bond instalments. Secondly, the lender wants to be confident that there is adequate collateral security in the property if, for any reason, the borrower can’t service the bond.

Today, industry sources say, up to 60 per cent of mortgage loans on existing homes are bonded by banks without a site visit – only a desktop valuation. The percentage varies from bank to bank, but increasingly only high-risk loans result in the bank requiring a site visit.

This is because banks are under increasing cost pressure because their origination fee (which covers administration, valuation and bond originator commission) is limited by the National Credit Act.

It is likely that because of these cost pressures, banks will continue to be resistant to making inspections a condition of lending – unless the inspection fee can be recovered from the buyer by adding this fee to the loan amount.

Estate agency owners (REBOSA), the Banking Association of SA, NABISA and the audit and legal professions are among those who have welcomed the PPB but who have recommended changes to the Bill.

One problem with the PPB draft legislation is that all the role players, whom the PPB defines as “property practitioners” have been thrown into one pot and are treated the same. The PPB defines property practitioners in a catch-all basket to include estate agents, home inspectors, bond originators, property auctioneers, rental agents, managing agents, business brokers, bank valuators, time share salesmen and virtually everyone else involved in any way in marketing or provision of services connected with the sale or lease of a property or a business.

The PPB also requires that all these categories of “property practitioners” must be properly trained, regulated and insured – via the issue of fidelity certificates by a new Property Practitioners Regulatory Authority (PPRA).   The PPRA will replace the existing Estate Agency Affairs Board.

10-year maintenance plans

Densification policies, security issues and basic economics has seen an accelerating swing away from freehold homes to community schemes.  A community scheme is an arrangement where the use and responsibility for parts of land and buildings is shared:  Including sectional titles development schemes, share block companies, home or property owners associations, housing schemes for retired persons and housing co-operatives.

Sectional title and housing schemes for retired people increasingly dominate the development landscape.  Absa says that in the last 20 years since 1995 apartments and townhouses have made up 27% of newly completed buildings funded by Absa.  For the three years 2012-15,  63 per cent of all residential development units financed by Absa were sectional title units – a trend they anticipate will continue.

But a great many sectional title schemes are in serious trouble plagued by mismanagement, insolvent body corporates and poorly maintained properties.    This poses significant risk to unit owners and to prospective buyers of such units.

The STSMA regulations are government’s serious attempt to right the sectional title ship and so protect unit owners.   The new rules require:

• Trustees to devise a properly funded 10-year maintenance plan for all common areas of the sectional title property.
• Audited financials for schemes; auditors are required to verify the maintenance plan.
• A sector ombud to police the SRSMA has been appointed in terms of the Community Schemes Ombud Service Act, 2010

In practice maintenance budgeting is not possible without an annual inspection/condition assessment of the property as a base line for the plan.

Trustees will now be forced by the sector’s auditors and by the newly-created sector ombud to embrace finance probity and devise plans to maintain the assets under their control.

These new sectional title rules will create many job opportunities for trained inspectors and for the building industry charged with doing the maintenance required.

National building inspector qualification

The essential work of a building inspector (BI) is to quality control new building work and to assess the condition of existing structures.

To perform this task, the BI needs a good knowledge of all aspects of the building envelope.  The BI is a bit like a GP in the medical world – not a specialist but able to perform at least a preliminary diagnosis of virtually any illness.   To be licensed as a doctor, the GP studies anatomy, dissects cadavers and then becomes an intern.  The GP is also expected to be ethical, thorough and knowledgeable –  always up to date with the latest knowledge and techniques.  The same criteria apply to the building inspector within the built environment.

The BIQ is being driven through Local Government Seta via the QCTO (Qualification Council for Trades and Occupations).

Although a private company, SAHITA (the South African Home Inspector Training Academy) had been approved by the QCTO to develop a national building inspector qualification, SAHITA agreed that LG Seta should take responsibility to fund the development of the BIQ.   This was done to widen the scope of the BIQ and to involve all stakeholders within the building inspection industry, including those employed by municipalities and by the NHBRC (National Home Builders Registration Council).

There is a serious shortage of local government building inspectors. It is reported that up to half of smaller municipalities do not employ legally-competent building control officers – BCOs who comply with the requirements of the National Building Regulations and Building Standards Act 1977.

There is an even more serious crisis of skills among municipal building inspectors who operate under the delegated authority of the local BCO.

Taken together with Human Settlements’ decision to extend NHBRC warranties to low cost housing there exists now a massive demand for trained building inspectors in the public sector.   The NHBRC is already reportedly far advanced to outsource all or part of its inspection work.

A benchmarked training structure for South African building inspectors to be employed in both the public and private sectors is key to plucking the low-hanging fruit referred to above:  employing large numbers of suitably qualified people, both to improve consumer protection within the property sector and to exploit the large number of job opportunities to be created by the PPB and the STCMA.

The national building inspector qualification (BIQ) now been developed by various stakeholders is a welcome move to address this deficiency and to provide South African benchmarks for building inspectors required to perform different aspects of building inspection.  South Africa needs building inspectors trained and qualified at different levels to perform different types of building inspection.

The occupation of building inspector is well-suited to providing a career path for matriculants.

Top of the pile is the municipal building control officer (BCO).    BCO’s are appointed by local authority councils in terms of the National Building Regulations and Standards Act of 1977.  The Act requires that a BCO must have a 3-year degree or diploma in one of the building sciences.   The BIQ will culminate in a NQF8 qualification and should therefore meet the requirements of the Act.

The BCO is the local authority enforcer of the National Building Regulations (NBR) and the various national standards which are “deemed to satisfy” the NBR.   South Africa’s building regulations are probably among the best in the world but are poorly enforced – due to a lack of competent building inspectors.

Every municipality must appoint at least one legally competent BCO to approve plans for new building work and to approve the completed work.  Yet, according to informed sources only about half of the municipalities in the country have appointed a qualified BCO.

This means, in effect, that a great number of building plans being approved are in terms of the law illegal – and are therefore open to challenge.

It is estimated that up to 10 000 new jobs for trained building inspectors could be created by the municipalities, the NHBRC and by the private sector.

The building inspection industry could also be the thin end of the wedge which is needed to start the racial transformation of the real estate industry – once estate agents are obliged to recommend independent home inspection.