As the country moves into Alert Level 4, the real estate sector finds itself still not able to operate outside their homes but at least able to conclude property sales with the deeds office open. The property sector’s new representative body National Property Practitioners Council (NPPC) says they will take matters further.
The past week has been one of extreme bewilderment for South Africa’s property industry. On Friday 24 April, after the President’s announcement of a phased re-opening of the economy from 1 May, it was initially thought that real estate services would be allowed to operate under the professional services section of the slightly more relaxed lockdown phase, Alert Level 4. However, on Saturday the government published their draft risk-adjusted strategy for economic activity which stated that residential real estate services would only to allowed to operate during Level 2 while commercial real estate would be allowed to operate in Level 3.
With the entire property sector already under extreme pressure, the sector’s newly formed representative body, the National Property Professionals Council (NPPC) on Monday 27 April in a written submission called on government to reclassify real estate services (both commercial and residential) as a Level 4 industry. Unfortunately, with the publication of the final regulations for Level 4 last night the real estate sector was still not listed under the professional services that will be allowed to operate but at least the deeds offices will reopen and able to conclude property transfers from Monday 4 May.
Commenting briefly on the latest developments, NPPC chairperson Vuyiswa Mutshekwane says many of their members are dissatisfied with the Level 4 regulations. “It would appear that government didn’t even consider our submission. The NPPC will be taking this further,” she says. One of the council’s founding members, Jan le Roux, CE of Rebosa, confirmed their members are very disappointed and says Rebosa will continue to agitate to have real estate services able to operate during Level 4.*(Rebosa asked their members in a newsletter sent out Thursday night 30 April to lobby the National Command Council to include real estate in Part H – Financial and Business Services in Level 4 of the regulations issued in section 27 of the Disaster Management Act. Ed.)
Possible total economic loss of R15.7bn to GDP
How dire the situation is for South Africa’s property sector, is laid bare in the NPPC’s submission they made on Monday to the government departments of Cooperative Government and Traditional Affairs (COGTA) as well as Trade and Industry (DTI). According to the NPPC the residential property market is projected to contract by 40% in 2020 which would result in a total economic loss of R15,7bn to GDP.
Before lockdown, because of the faltering economy the property market was already showing a drop in property sales, with the exception of the lower-end of the market. The lockdown since mid-March brought the housing market to an almost complete standstill with tenants unable to relocate and honour lease agreements and all pending property transfers in limbo.
With the Deeds Office closed during the lockdown, estate agents were unable to earn an income through commission. This state of affairs not only restricted estate agents from concluding property transfers but also affected other industries directly linked to property sales such as financial lending institutions, bond brokers, valuators and conveyancing attorneys. According to the NPPC more than 50% of retail banking assets are generated by real estate and supply chain linkages include conveyancers, valuers, property and facilities managers, tradesmen etc. all of whom are at risk should the industry not be permitted to operate.
Deeds Office open during Level 4
One positive for the property industry is the reopening of the Deeds Office during Level 4. Dr Andrew Golding, chief executive of the Pam Golding Property group, welcomed the opening of the Deeds Office next week. “The Deeds Office opening means a short-term easing of cash flow for the largely commission-based real estate industry, potentially helping to save jobs, while providing much-needed revenue for government coffers. This is of course dependent on all deeds offices – which operate independently of one another – opening and returning to normal operating strength,” he says.
Golding continues: “While the current sales transactions and the backlog sitting in the Deeds Office will release cash flow and assist in the short term, it is hoped that this is a prelude to the real estate industry being granted permission to operate at full strength, but within the prescribed parameters set out by the government.
“Further good news is that from Monday, conveyancers are back at work, facilitating the processing of property transfers and the issuing of rates clearance certificates. For buyers it means that their property acquisitions can now reach final conclusion, although it remains to be seen when they will be able to move into their new homes, particularly as removal companies are not yet permitted to operate, and given the restrictions on the movement of individuals,” he ends.
Property buyers with property transfers already submitted to the Deeds Office will however have to bear in mind that municipal clearance certificates will have lapsed and will have to be done again.
The ‘new normal’ for real estate professionals during Level 4
As estate agents can only work remotely from home their focus needs to remain visible – key activities would include to continue with online marketing, keeping their social media platforms updated with relevant news, keeping in touch with clients and team members via virtual conferencing etc as they had done during the lockdown period.
During Level 4 it will still be challenging to conclude new sales while it remains illegal for prospective home buyers to visit the properties they want to buy. It is uncertain how long the country will have to remain in this state – it could be weeks or months.
Financial assistance for the real estate industry is limited. The business relief schemes put in place are mostly directed at businesses and employees. Many estate agents are not legally eligible to claim UIF as they are full commission earners.
According to the NPPC if real estate is not declared an essential service alongside the Deeds Office, they fear that up to 80% of the profession will disappear and along with it all the industries that rely on the industry.
Why real estate should be allowed to operate during Level 4
The NPPC in their submission pointed out that the real estate sector poses a relatively low risk of transmission of the coronavirus. Most property practitioners currently work remotely and are only required to do periodic site visits and inspections in which case stringent safety measures can and will be applied. The same applies for managing agents and commercial property managers.
It is further recommended by the NPPC that property professional’s offices remain closed to the public under Level 4 and if staff need to be at the office, the number of people be limited to one third of the workforce while stringent sanitizing and health protocols will be observed.
No open homes or show houses will be allowed during Level 4. Only private viewings strictly by appointment by only one agent and then only with the consent of the client and the property occupants. During the viewings the following would apply: social distancing, wearing of face masks, following all necessary sanitizing processes.
The NPPC also proposed as a further mitigating measure the introduction of contact tracing forms for all client meetings.
According to the NPPC submission, “the real estate services (including commercial real estate services) are formally classified as professional services by SARS and should therefore be given the same low risk rating as professional and financial services, i.e. they should be Level 4”.
Mutshekwane says “our first priority is to ensure the safety of practitioners and clients and we have proposed various methods that would ensure that. Fortunately, many practitioners already work remotely and can be classified as low-risk however extra care will have to be taken and where possible, activities that usually take place in-person will have to be conducted remotely such as valuations and appraisals etc”.
“We recognize the enormous task of ensuring the health and safety of society while meeting the needs of industry and fully support the Risk Adjusted Strategy for Economic Activity however, government should prioritize the re-opening of those industries that can be classified as low transmission risk and high economic contribution such as the real estate sector.”