FACING UP TO CHANGE

Courtesy Property Professional Jan 31, 2018

Pending legislation and a new property sector rulebook mean agencies cannot ignore empowerment requirements.

Estate agents who complain that the new Property Sector Code amounts to an onerous burden have only themselves to blame for the 60-page empowerment rulebook that they can no longer ignore. That is according to Mashilo Pitjeng, who has been closely involved with the amended code.

He told the annual general meeting of the Real Estate Business Owners of South Africa (Rebosa) in October that the residential property sector’s failure to voluntarily grasp the transformation nettle has forced the hand of lawmakers. And in an interview with Property Professional, Pitjeng was adamant that residential sector agencies had paid little heed to transformation imperatives.

“Where industry fails, where the market fails, government will legislate,” says Pitjeng, who chairs the research committee of the Property Sector Charter Council and is the facilitator of its technical committee. “The residential sector is not married to the philosophy of transformation. They ignored it (the old code), making zero submission,” he says. The new code was gazetted in June 2017, amending the 2012 version, with a number of new provisions and tweaks to weightings and targets.

The game-changer, though, is the Property Practitioners Bill, also gazetted in 2017. Once passed into law, the bill will put the code front and centre for agencies because it prohibits the issuing of a fidelity fund certificate to anyone “not in possession of a BEE certificate”, details of which are in the code.

FIDELITY FUND CERTIFICATES

But Portia Tau-Sekati, the Property Sector Charter chief executive, says agencies need not panic. None will be denied a fidelity fund certificate, regardless of its broad-based black economic empowerment score, so long as they provide a BBBEE certificate. Tau-Sekati does not rule out future changes to the property code that might include minimum points requirements, but says for now the compliance bar has been set low for small agencies. She explains that those with a turnover below R2.5m a year are classified as exempted micro enterprises and need only submit an affidavit in lieu of a certificate, stating turnover and ownership.

“Every year the Department of Trade and Industry asks, ‘How is residential doing?’ and I tell them I have no clue. So we are saying let them [the residential sector] provide. Whatever your level, just provide it so we can understand the issues and see if we can sort out where there are challenges,” says Tau-Sekati. The Department of Trade and Industry drafted the generic codes of good practice upon which all industry codes are based, including property.

SMALL ENTERPRISE CONCERNS

But Jan le Roux, chief executive of Rebosa, is concerned about how qualifying small enterprises with limited resources will cope. “It’s very tough for a small company to comply,” he says, and questions some of the thinking behind the R2.5m threshold. While Le Roux emphasises Rebosa’s unequivocal support for transformation, he says this threshold makes little sense as it still excludes 85% of the industry. “Bryan Chaplog, previous chief executive of the Estate Agency Aff airs Board, indicated that 85% of the industry falls below the R2.5m threshold. This is indicative of the lack of research on which the charter is based. This information is available at the EAAB.

“A big percentage of agencies are managed by one or two owner principals, rendering much of the charter an almost impossible target. The EAAB can confirm the number of principals and agents in each agency but I believe this was never made available to the charter, and if so it was not considered.”

Tau-Sekati acknowledges that real estate business owners had objected to the R2.5m threshold, but says they had failed to put a viable alternative on the table during consultations. “We used the estate agency board’s information and found out if we increased this to R10m, 80%-90% of agencies
would be exempted … and to us that was not enough to transform the estate agents.”

ECONOMIC DEVELOPMENT DESIGN

Pitjeng says qualifying small enterprise agencies should easily be able to earn the points needed to comply from procurement and enterprise development. “My message to everyone is: find something to do within your means. This is not designed to make you broke; codes are designed for economic development,” he says. Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, says the code needs to be seen within the context of a residential sector that has shrunk in size over the past decade while regulation has grown.

“The tighter market caused some natural attrition, but 2008 was also when the board changed industry entry criteria. The stringent barriers are restricting all-comers to real estate, have created dysfunctional behaviour and are seriously hampering transformation and growth,” says Geffen.

“This is just one example of the impossible hurdles to actually implementing the code, because the board’s mandatory year-long internship takes the option of a career in real estate off the table for 60% of the population. How can you expect candidates to put themselves in a position of low earning capacity for that long if they have families to feed?” Geffen calls for tax breaks or other financial assistance to help agencies meet compliance requirements.

SCORECARD: PROPERTY FIRMS WITH A TURNOVER OF R2.5M TO LESS THAN R35M

  • Category points
  • Ownership 27
  • Management control 9
  • Employment equity 11
  • Skills development 17
  • Enterprise and supplier development 35
  • Socio-economic development 2
  • Economic development 4

TOTAL 105

HOW IT WORKS

The amended Property Sector Code spells out transformation goals for the entire property industry, from JSE-listed property asset unit trusts to small estate agencies. A host of targets, scorecards and weightings apply, depending on the kind of property company, its turnover or net asset values.

Key parts of the code applicable to smaller estate agencies:

• Agencies with an annual turnover of below R2.5m are deemed exempted micro companies and need only submit an affidavit stating turnover and ownership. They automatically achieve a level four rating (80-89 points);

• Agencies with a turnover of between R2.5m and R35m are defined as qualifying small enterprises (QSE) and must submit BBBEE certificates;

• Level one (100 points or more) is the highest rating, level eight the lowest (40-54 points); beneath that is deemed non-compliant;

• QSE agencies that fail to meet 40% compliance targets in the ownership element in addition to either skills development or enterprise and supplier development will have their BBBEE qualification marked down by one level.

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