There’s no good reason to buy into a share block company

THERE is no good reason for blocks of flats or group housing schemes to be run as share block companies, and those still sticking with this system should be converted to sectional title without delay.

According to property management company Trafalgar MD Andrew Schaefer, Sars eliminated the tax advantage of purchasing into a share block rather than a sectional title scheme in 2002. The former were also tricky to run in terms of the requirements of the new Companies and Intellectual Property Commission.

By contrast, conversion was relatively simple, especially if the share block company had an experienced managing agent and an attorney on hand to assist with the legalities of drawing up sectional plans, opening the sectional title register, transferring the new sectional title units to their owners and removing those owners as shareholders of the share block company.

He says some shareholders may be reluctant to make the change given the costs involved, but the laws had changed since share block was introduced to South Africa and these shareholders should be aware they could shortly come up against some real – and potentially expensive – problems if they stayed in a share block company.

The first was no separate municipal accounts for rates or refuse removal. The share block company received one municipal account and must recoup its expenses via shareholder levies.

However, failure to pay, put every shareholder in trouble.

The second issue was no home loans for potential buyers. Currently only two banks grant loans for share block purchases – and they charge higher interest rates than normal home loans and require the loans to be repaid in a shorter period.

“This can make it difficult to sell share block units as most potential purchasers need a home loan,” Schaefer says.

The third issue was that homeowners actually had no ownership of their unit. Share block ownership is not property ownership, with the purchaser really buying the right to use the unit linked to your share purchase.

“In Durban there are more serious problems looming for owners in some share block buildings built on land leased from the city council, because those leases are running out. They really need to convert their ownership to sectional title as soon as possible,” he says.