Few property owners and investors want to handle the day-to-day administration of their assets. Managing properties is a complex process, which is why specialist property management companies are doing such good business in South Africa.
The market for investment property in South Africa is worth more than R100-billion and the vast majority of this falls under the direction of property management companies.
Jay Junkoon, property management director at JHI, says property management is not just about the physical entity — the bricks and mortar; it has an investment perspective too.
“Properties are developed by investors for the purposes of securing tenants in order to generate revenue,” he says.
“Typical services of a property management firm will include, for example: the physical maintenance of the asset as it has to be attractive to potential occupants, the leasing of the premises to prospective tenants and then all the contractual issues that surround these relationships. There are also financial administration and accounting aspects that need to be handled, as well as collections and expenses on, for example, rates, cleaning and security.”
Junkoon says most property management services are outsourced, but some larger institutions, such as banks, have in-house departments dedicated to this function.
Property management covers the entire range of property portfolios and price points — from modern buildings and offices to industrial warehouses and factories.
“Think of property management companies as service providers,” says Junkoon.
The umbrella body for commercial property in South Africa is the South African Property Owner Association (Sapoa), which was established in 1966 by the leading property investment organisations to bring together all role players in the commercial property field to create a powerful platform for property investors.
Sapoa is recognised as the re-presentative body and official voice of the commercial and industrial property industry in South Africa, with a combined portfolio in excess of R150-billion. Members control about 90% of all commercial and industrial property in the country.
Typically, property management companies will:
- Take care of rent collections and credit control: In any organisation cash flow is crucial and it’s up to property managers to ensure tenants pay timeously. They need sophisticated accounting and computer systems to stay on top of this.
- Organise leasing management and tenant liaison: Property managers say building relationships with their clients is important. Negotiations need to be detailed and the terms and conditions of a lease have to be well understood by both parties. There is an ongoing relationship — property managers have to deal with requests on time and with any unhappiness sensitively.
- Accounts payments: A strong administrative element is required to control costs and make sure that accounts are settled. These can include municipal rates, electricity, levies, security and cleaning. Again, these terms need to be negotiated upfront.
- Reporting: Most investors will require periodic reports on how their assets are performing. Property management companies are required to provide these in a format that clients find useful. Some want a simple analysis, others require detailed reporting and financials.
- Facilities management: Buildings require constant maintenance and upkeep. Property management companies are responsible for maintaining the asset on behalf of investors and to the satisfaction of tenants. This can include anything from a simple paint job to complete renovations.
- Budget formulation and control: Budgets have to be formulated and then tweaked over time. Property managers are responsible for communicating these changes to all parties and for reworking them from time to time.
- Contract management: Typically, tenants will sign a lease for an agreed period. As these leases expire, property managers will typically negotiate a new lease. It is their responsibility to manage this process.
People skills are important. Property managers have to keep the interests of investors and tenants at heart and that can be a delicate balancing process. A property with no tenants does not generate income and a property with unhappy tenants has the ability to do the same. It’s important to keep vacancy levels as low as possible in order to maximise returns.
Property management companies typically charge a percentage — to be negotiated — of the total gross collections of rental income.