CROYDON VINEYARD ESTATE HOME-OWNERS

This blog is set up for owners to debate the issue of severe penalties about to be levied on those of us who have not commenced building within 3 years of first transfer.

Ivan van der Merwe has initiated this blog and can be contacted at ivan@matchmakers.za.com
or 021 852 8160.

Background

During 2009 penalty levies will start being applied and this means that about 173 out of the 205 owners, i.e. 84% (it could be somewhat less) will be put under pressure to commence building by a penalty of R1 015,00 per month, i.e. they will be paying R2 030,00 per month. The total penalty will be more than R2 million per annum. This money is not required to run the home owners association as it is fully funded by existing levies.

At the 2008 AGM in December last year, a proposal was accepted that a Special General Meeting be held to decide whether penalty levies should stay as they are or whether another proposal should be accepted. The Trustees then submitted two alternative draft proposals for owners to comment on:

Proposal 1 effectively means that the penalty will remain payable, but owners will only have to pay it 12 months later, i.e. you will get an account for a lump sum of R12 000,00+, in addition to your normal levy. This lump sum will be due immediately at the end of your fourth year, i.e. during 2010 for most of us.

Proposal 2 effectively means that the period to start building will be amended to 4 years, i.e. 2010 for most owners. Penalties will commence from your fourth year, i.e. during 2010 for most of us.

I have written to the manager to propose a third option, i.e. that the period to start building be amended to 5 years, i.e. 2011 for most owners. There are two main reasons for this. Firstly, this was the proposal made by me at the AGM after the chairman asked me to make a specific proposal for a special general meeting and, secondly, I explained to the AGM that this recession, at least as far as property economics are concerned, is at least a two-year phenomenon.

I discussed the principle of penalty levies for delayed building with the municipality and I was interested to learn that they do not apply this at all for municipal developments. The municipality’s only interest in our affairs is to have a copy of our amended constitution.

The arguments

At the AGM Members for the penalty waiver made the following points:

1. One owner said that he purchased for investment purposes and the current economic climate was not foreseen at the time.
2. He further stated that he feels let down by the developer as he was not aware at the time that an opposition estate would be erected on the adjacent property by the same developer.
3. The current economic slump was not anticipated and many owners are sitting with a 3-year investment that has not as yet shown any growth.
4. A penalty levy will scare away possible investors.
5. Penalty levies would result in more foreclosures.

Members against the penalty waiver were of the following opinions:

1. It would be unfair to the members who have already gone to the expense of building.
2. The plots and houses on the estate will have a higher value if more properties are built.

Additional arguments by Ivan van der Merwe:

1. We all want our property values to grow, but nobody can fight against the thunder of a severe economic slump. The main economic slump factors first need to change before values will start growing again. The simple act of penalising owners will not do it.
2. An economic downturn is usually a good thing as it shakes out those who have undertaken unsustainable ventures. But this shake-out should preferably happen in an orderly way, i.e. not through foreclosures which just give the development a bad name. Already we have about 10% of owners who are in arrears with their levies. A doubling in levies could push this to 30% in the current climate. Do we want to bring more hardship to people who already battle the effects of the slowing economy?
3. The argument that “it would be unfair to the members who have already gone to the expense of building,” seems to assume that these members actually decided to build because they feared the penalty levy. Surely they did not make a R700 000-plus investment purely to avoid paying R1000 per month for a while?
4. The second pro-penalty argument is “the plots and houses on the estate will have a higher value if more properties are built.” This cannot be accepted at face value. A few more houses in this economic climate is not going to make much difference at all to values. Only the return of strong economic growth and lower interest rates will do that.
5. The implementation of the penalty will cause an initial slump in Croydon erf prices as cash strapped owners sell to avoid the penalty. This will only serve to delay the upswing in the micro economy of Croydon.
6. The sudden proliferation of new developments around Croydon has created an oversupply in the area which adds to the difficulty speculative owners has to sell their plots. This mitigates further against the penalty.
7. If the principle of democratic majority means anything then the penalising of 84% of owners in favour of a small minority would be unfair.
8. The estate is still regarded as “in the development period”. This tells its own story about how immature the development still is.
9. There is nothing wrong with being a speculative/investment owner. I estimate that the greater part of the developer’s profit was brought to him by investment buyers.

Other issues

1. I wonder if the trustees have considered the tax implications? If the association makes a R2m profit how much is SARS going to take? This will be a total loss.
2. The developer wrote the initial constitution to maintain very tight control over the development, and that is understandable. It is probably time now to get the constitution into a more normal form, i.e. 51% attendance at an AGM is too high. And so is the 75% majority needed to change the constitution. I suggest something like 30% attendance and two-thirds majority respectively.
3. Having said this, the developer has been magnanimous in agreeing to vote with the majority of owners. He also pays levies on his 14 remaining plots although he does not need to.