Gerard Abrahamse, General Manager at ASI Property

Community schemes such as sectional title complexes and HOAs are now at the heart of South African urban life. They offer security, shared amenities, and a sense of community for millions of residents, making them a popular choice for investors and families alike.

South Africas property market has changed dramatically in recent years. More and more people are choosing to live in community schemes like sectional title complexes and Homeowners’ Associations (HOAs). For everyone, from big investors to families buying their first home, these shared living spaces have become the backbone of urban life and investment.

However, some important financial challenges are emerging for many community schemes. Recognising and addressing these issues early is key to protecting the future of these communities.

ASI Property has taken a close look at what drives the financial health of community schemes, why regular maintenance is essential, and what trustees can do step by step to keep their communities thriving.

The anatomy of an institutional crisis

The financial stability of a community scheme is based on a straightforward principle: every owner needs to pay their levies in full and on time each month. When this doesn't happen, it can create challenges for the entire community, but proven strategies can help overcome these hurdles.

Recent data from the Community Schemes Ombud Service (CSOS) reveals the massive scale of this challenge:

• The dispute influx: CSOS registers a high amount of formal dispute applications annually.
• The financial burden: More than half of all applications relate strictly to financial disputes, primarily levy arrears, interest disputes, and collection bottlenecks.
• The recovery backlog: Over 60% of ongoing regulatory interventions are directly tied to bodies corporate fighting to recover unpaid debt from defaulting owners.

Additionally, many community schemes are not yet registered with CSOS, which means they miss out on early support and valuable regulatory protection. These challenges aren't only about management; they also reflect wider economic pressures, changes in city services, and sometimes gaps in regulations. Understanding these factors can empower trustees and owners to find effective solutions.

1. The over-indebted consumer: South African households are under economic pressure, and sometimes people have to make difficult financial choices. When community levies go unpaid, it affects the whole scheme. Open communication and flexible payment plans can help owners stay on track and keep the scheme financially stable.

2. The municipal tariff and infrastructure trap: Major metropolitan councils across South Africa, vividly illustrated by ongoing financial crises and multi-billion-rand debt burdens in metros like the City of Johannesburg- are aggressively raising utility tariffs to cover revenue shortfalls. Because community schemes operate as bulk buyers of water and electricity, they must pay the entire council bill upfront. When a segment of unit owners’ defaults, the body corporate must use its emergency reserves to cover the municipal bill. If they cannot pay, the entire complex faces the risk of utility disconnections, punishing both paying and non-paying residents.

3. The volunteer governance mismatch: Most community schemes are run by volunteer trustees, dedicated individuals who want to help their communities. With the right support and resources, even those without professional experience can ensure collections stay on track, budgets are met, and maintenance funds are properly managed.

How to safeguard property values

1. Depletion of reserve funds: Cash reserves meant for long-term maintenance are redirected to cover short-term utility shortfalls.

2. Deferred maintenance: Critical upkeep, such as elevator servicing, roof waterproofing, perimeter security, and painting, is postponed. The physical property begins to degrade visibly.

3. The special levy trap: When an emergency occurs (e.g., a burst main water line or a collapsed boundary wall), trustees are forced to implement aggressive special levies. This places an unfair financial burden on paying owners, often pushing them into default as well.

4. Protecting property values: Banks look at a complex’s finances before approving new home loans. By keeping finances in good shape, community schemes make their properties more attractive to buyers and protect property values.

Trustees can make a big difference by acting confidently and within the law. Choosing legal, transparent processes builds trust and keeps the community strong.

To protect South Africa’s residential communities, we must transition from reactive debt collection to proactive financial asset management. ASI Property recommends a three-part framework for sustainable governance:

• Enforce a strict 60-Day mandate: Do not allow arrears to accumulate for months. Hand accounts over for formal legal collection within 60 days of the initial default.
• Implement professional financial modeling: Move away from guesswork budgeting. Schemes must conduct rigorous, data-driven 10-year maintenance plans to ensure reserve funds are fully funded and protected from operational shortfalls.
• Appoint executive managing agents: The era of the amateur volunteer trustee is coming to an end. Complex community schemes require professional, objective executive managing agents who understand compliance, financial management, and legal debt recovery. ASI Property is proud to offer comprehensive management services, equipping trustees with the guidance and expertise needed to navigate these challenges effectively.

The real issue in community schemes isn’t about property itself, it's about money and how things are run. These kinds of homes are still great investments, but their future depends on smart, professional management. ASI Property is committed to supporting trustees by providing tailored advice, regulatory insight, and strong operational support. With our experienced team and a proactive approach, trustees can keep their schemes healthy and ensure everyone’s investment continues to grow.

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