Real estate industry nearing a crisis?

Real estate industry nearing a crisis?

If the numbers are to be believed, approximately half of South Africa’s real estate agencies are operating without a Fidelity Fund Certificate.

The state of real estate

There is a major crisis brewing in the real estate industry and strangely enough, very little, if anything, is being said about it in the mainstream media. No matter which way you twist or turn it, the fact that thousands upon thousands of Fidelity Fund Certificates (FFCs) have not been issued to estate agencies is of huge concern. What is more concerning, however, is the total lack of communication from the Estate Agency Affairs Board (EAAB). It appears that very few of those directly affected have been able to find answers as to why their FFCs have not been approved. Property Professional magazine tried to elicit a response from the Board but, despite a request for confirmation of receipt from both the CEO and his PA, as well as a lengthy deadline in which to respond, once again we were met with a deafening silence. While this article will be focusing on the FFC issue, it is worth noting that we have penned an open letter to the EAAB discussing its total lack of communication, both with agents and the media. This will hopefully help open the lines of communication once more. It has been estimated that approximately half of the required FFCs are currently outstanding for 2014. As if that wasn’t bad enough, it has come to light that many agents have been waiting since 2012 to receive their FFCs. Although the issue is quite complex, it does appear that the main problem lies with the audit reports. While it is a given that some agencies have not submitted an audit to the Board, many have and, through absolutely no fault of their own, have not received the documentation needed to practise as an estate agent.

Businesses and agents unite

REBOSA and the Institute of Estate Agents have become involved and are going all out to ensure that the situation is resolved as quickly and as painlessly as possible. However, agents on the ground who wish to remain anonymous believe that the situation is very serious and that the EAAB should never have allowed things to deteriorate to this level. They add that once the Board had realisedthat there was a problem, it should not only have contacted the agencies concerned, but should also have put together a staff contingent dedicated to sorting out the issues as quickly as possible. One would think that given the seriousness of the situation, the Board would have gone all out to ensure that those affected were notified and directed as to how to fix the problem. However, it appears that very little was done until the matter became critical and REBOSA and the Institute became involved. Agents maintain that their efforts to find out why their FFCs have not been issued have been frustrated by EAAB staff members who don’t appear to understand the gravity of the situation and who have neither the knowledge nor power to resolve the matter.

Agents not really above “Board”

Of course there are always two sides to a story and, to be fair to the Board, there are agents who have blatantly ignored the requirements, perhaps assuming that the Board will overlook their transgressions. However, there are also many cases where the auditors employed have made mistakes. There are numerous examples of why the Board cannot currently issue an FFC and these include:

  • Failure to submit an audit report.
  • Principals who failed to submit audit reports for both their trust and business accounts.
  • Late submission of audit reports.
  • The audit reports were submitted in the wrong format.
  • Audit reports that were compiled by an accounting officer and not a registered auditor.
  • Correct audit reports sent, but mislaid by the Board.

American author Ben Bova once stated, “Red tape has killed more people than bullets…”. It may be a harsh statement, but not having an FFC could have a calamitous effect on agents and agencies across the country, and people’s livelihoods are at stake. Agencies generally employ more than a couple of agents, and they also have admin staff to consider. These people have families to support, school fees to pay and mortgages to service. The sheer number of outstanding certificates is pretty hair-raising on its own, but when one considers the number of people who will be directly affected by the lack of an FFC, the situation becomes terrifying. While no one is suggesting that the EAAB overlook agents and agencies who blatantly disregard the rules, it is pretty obvious that the matter needs to be addressed urgently and safeguards put in place to ensure that something like this never happens again. The apathy currently being displayed by the EAAB is never going to be acceptable. The lack of response to a magazine that speaks directly to estate agents begs the questions, is the Board  remotely concerned by the crisis and does it understand the devastating impact this situation could have on the property industry as a whole. Even if the answers are yes, it is and yes, it does, the total lack of communication makes it appear otherwise and this is something that needs to be addressed urgently.

Illegal operations

Perhaps it’s not surprising that agents are unwilling to go on record – given the numbers, it is evident that many estate agents are currently operating illegally. You have to feel sorry for those who, through no fault of their own, now find themselves facing an uphill battle to secure the right to operate as an estate agent. Those who are willing to speak out tell stories of being sent from pillar to post at the EAAB, and of inexperienced staff who have no idea how to resolve the issue. However, the biggest and most frustrating thing of all is the total lack of communication between the Board and agents and principals. Surely the time has come for the EAAB to consider employing competent people to help resolve this issue? What is the point of having a hotline when the person on the other end of the phone has no idea what you are talking about and cannot offer the necessary solutions. The good news is that all is not lost and both REBOSA and the Institute of Estate Agents are not only aware of the problem, but are actively working towards a resolution.

REBOSA gets EAAB to talk

According to recently appointed head, Jan Le Roux, REBOSA is actively communicating with the Board, and has held several meetings. “We have managed to negotiate the placement of two REBOSA staff members in the offices of the EAAB. Their sole responsibility will be the rendering of assistance to REBOSA members who are experiencing delays in receiving their FFCs.  These staff members have been available from 17 March and all REBOSA members have been advised to direct their queries to and to myself to ensure effective assistance.”

He adds that, given the above, it is apparent that the Board is taking the matter very seriously and to the best of REBOSA’s knowledge, is doing what it can to address the issue. When asked about the lack of communication, Le Roux said: “We think the communication could be better but any lack thereof is probably caused by the backlog that has now occurred. In any big organisation one does have the problem that if things start piling up, everything suffers in the process, communication being one of them.”

He also raises a very good point when he notes that the problem could have been less severe had every principal responded in a timely manner to the new requirements that demanded that principals provide financial statements over and above the normal trust account audit certificates. This should have been communicated to auditors long before the figures were required by the EAAB in order to facilitate a smooth transition. He does, however, believe that a better result could have been achieved if the EAAB had implemented the new requirements gradually or had made extra staff available during the implementation process.

Jeanne van Jaarsveldt, chairman of the Institute of Estate Agents, says that the institute’s offices have noticed an increase in the number of agents looking for assistance regarding the non-issue of Fidelity Fund Certificates.

While Van Jaarsveldt agrees with Le Roux, he notes that the EAAB gave principals ample time to get their financial ducks and new audit requirements in a row. “It has become evident that most of the problems are due to principals ignoring the new requirements outright or not communicating the requirements to their auditors.”

Regardless of who is to blame, it is evident that the situation needs to be resolved as quickly as possible. Van Jaarsveldt highlights this when he says: “The situation could snowball if the matter is not resolved. We are four months away from the deadline for the 2013/14 audit reports. Given that some agencies are still struggling with problems from the 2012/13 financial year, this could result in some agencies operating for two years without a valid FFC. The institute strongly advises that members who are experiencing problems contact our offices in order for us to help resolve these.”

What is abundantly clear is that the problem is not going to fix itself and perhaps by joining forces we can help to resolve this crisis before it becomes a national tragedy.

Read Property Professional’s open letter to the EAAB on the matter.

Text:  Lea Jacobs

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