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Right now, there are about 66 000 residential and commercial sectional title schemes registered in South Africa. However, that number is expected to increase exponentially in the next couple of years as our cities continue to become increasingly built up to meet growing demand.
This upward trajectory is making combined-use complexes even more popular especially among the young who are now accustomed to working and doing business from home since the pandemic.
As always, Cape Town is leading the developing trend, with its latest six-tower development called Harbour Arch proving a perfect example. Boasting restaurants, bars, offices, hotels, health clubs, and the CBD’s largest selection of apartments, it is literally a mini city within a larger one.
The offering is great for buyers and investors yes, but not so much for estate managers and insurers who struggle to find the best insurance cover for these multifaceted entities. ‘When something goes wrong in a sectional title complex like the roof leaks, floor cracks, a geyser bursts or there’s a small fire for example, the question about who is responsible for fixing the damage rears its ugly head. With so many stakeholders involved, ownership of issues can get blurry, and this can cause tension between trustees, owners, and occupants,’ warns Susan Grobler, head of Santam Real Estate
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The responsibilities of the body corporate
Community schemes are highly regulated and there are mandatory insurance policies that they must have in place as stipulated in the Section Title Scheme Management Act, 2011 and The Community Scheme Ombud Service Act, 2011. This includes having adequate insurance cover for geysers.
Generally, a body corporate will usually have enough cover for all the buildings within a sectional title scheme – whether this be the individual housing units or common property areas. ‘This means that if a unit’s roof is damaged due to extreme wind conditions, the body corporate insurance pays toward the repair,’ says Grobler.
However, it is important to note than sectional title insurance only covers the brick-and-mortar part of residential schemes and common property and not moveable contents. These must be insured by homeowners or their tenants.
The onus on homeowners
Grobler goes onto explain that sectional title unit owners can ask the body corporate for the insured value of their property and request this be increased, usually at the annual general meeting.
‘This request should come with a recommendation to the trustees to check the value of the entire building is correct as body corporate rules require that a scheme is never under-insured,’ she explains.
Homeowners are responsible for initiating claims via the body corporate (never directly with the insurer) and a tenant’s claim must go through the unit’s owner, before being taken to body corporate for processing. The claim must be signed off by a trustee or the managing agent and if an excess is due, the owner is responsible for paying it, according to the Sectional Title Act in South Africa.
So what should estate managers be looking for?
When it comes to choosing a real estate insurance policy, Grobler advises body corporates to opt for an experienced insurer with a robust track record in claims pay-outs and deep regulatory understanding of things like the Sectional Title Act.
‘An innovative product selection that has a wealth of specialised solutions which can be adaptable to the evolving environment is a must. Policies should be simple to access and understand, should be regularly reviewed, and must include special features, like public liability cover, trustee liability cover and geyser maintenance, which remains one of our most common claims, even in 2021,’ says Grobler.
She goes on to say that estate managers and body corporates should not overlook a future-thinking approach to the emerging real estate risk landscape, especially things like cyber risk. Figures already estimate that the number of connected smart devices will exceed 50 billion by 2050 which gives sophisticated cybercriminals ample opportunity to steal personal data.
‘The real estate risk landscape is evolving at pace as smart cities come to the fore. The real estate insurance of the future has already started integrating AI, machine learning, big data, and data analysis to provide hyper-personalised products to clients. In sectional title schemes, the Internet of Things will play a massive role going forward – we are already using smart geyser technologies for example to control temperatures remotely and machine-learn people’s usage patterns to manage potential problems before they develop,’ concludes Grobler.