Property management companies are facing tough times as competition in the sector increases. Although the low-interest rate-induced property boom, coupled with the strong thrust towards black economic empowerment (BEE), has created huge opportunities in a fast-growing market, the requirements of the Property Charter and of a raft of new legislation has thrown up a number of challenges that will seriously tax the resources of service companies.
Marna van der Walt, CEO of Gensec Property Services, says the environment within which property management companies operate is becoming more competitive by the day: “It’s getting tough out here,” she says.
Added to these challenges, the entry of more companies into an already competitive market has put a squeeze on profit margins as cost-cutting becomes a major weapon in the fight for market share. And many companies that have been clients of property management companies have decided to take the servicing function in-house in an attempt to cut their own costs.
Van der Walt says new and existing legislation that might stretch the resources, time and skills of property services companies include:
- “The Credit Bill and the Debt Collections Act (if we have to comply with these regulations, as rental collectors, it would hugely complicate our administration);
- “The Financial Intelligence Centre Act, which has also placed an incredible administrative burden on our shoulders, as we have to investigate and verify the financial details of some 7 000 tenants under our administration. If any financial detail is not 100% verified, we are not allowed to continue doing business with such tenants — and we have quite a few who are already looking for loopholes to evade their financial responsibilities;
- “The Stamp Duties Act, which requires us to retrospectively determine any incremental income from any contract — and if so, draft a new (additional) contract;
- “The Generally Accepted Accounting Practice accounting requirements, which require us to retrospectively average out any escalations in operational leases with the rentals charged in previous years.”
Van der Walt adds that apart from these administrative “nightmares,” service fees are also under pressure as companies fight for market share in a shrinking market.
“Then the Property Charter, while laudable in its aims and intentions of ensuring equity in a booming property sector, has further complicated an already complex market. While we fully support the charter’s aims — and while our company is already well advanced in meeting some of the charter’s five-year targets — the demand to upgrade the skills of previously disadvantaged individuals ‘in-house’ means that we now also have to spend a lot of time on training new people within a complex industry.”
Van der Walt says another frustrating reality is that all property companies are in the same employment equity boat — and that the poaching of skilled individuals is rife. The only way to hold on to scarce skills — and meet the charter’s enterprises scorecard — is to pay higher salaries — thereby adding further to an escalating cost structure.
“However,” she says, “aside from these serious challenges, exciting opportunities also exist to expand business in a fast-growing market.
“Apart from the business expansion potential created by the launch of new property development projects, a growing number of highly skilled, enterprising black businesspeople — lawyers, accountants, architects — are entering the property business, bringing with them an energetic and committed boost to a fast-growing sector of the economy,” says Van der Walt.
“And while the property services business within our borders is becoming increasingly tough and competitive, opportunities are also opening up in the rest of Africa and in the Middle East as the reputation of the South African industry spreads offshore. This compensates for possible turnover and profit loss inside South Africa.
“We have managed to add new assets to the value of R3,5-billion to our existing business — a portfolio of R12-billion — over the past year,” she says.