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The issue with BEE certificates and FFCs

The issue with BEE certificates and FFCs

MAIN IMAGE: Deli Nkambule, legal manager and acting transformation manager at the PPRA, Chris Dykes CEO of Infinity Learning, and Jan le Roux, CE of Rebosa.

Editor

If you’re a real estate agency owner (estate agency inclusive of sole proprietors), you must submit a verified BEE certificate to obtain your FFC. If you’re confused about how to qualify for this BEE certificate, you are not alone. It can be quite a process for agencies who generate more than R2.5 million in turnover per annum.

The PPRA recently hosted a webinar with speakers Deli Nkambule, legal manager and acting transformation manager at the PPRA, Chris Dykes CEO of Infinity Learning, and Jan le Roux, CE of Rebosa, to clarify matters around BEE certificates. Needless to say, there was a surprise.  

Why do you, as a property practitioner, need a BEE certificate?

The short answer is that it’s the price of doing business and promoting transformation in South Africa. Section 48 of the new Property Practitioners Act (which came into effect in February 2022) states that no entity may act in the capacity of a property practitioner without a valid FFC (Fidelity Fund Certificate), and section 50 (a) (x) makes it clear that said FFC may not be issued without a BEE certificate.  

Dykes explained that there are three BEE categories: EME (Exempt Micro Enterprise), QSE (Qualifying Small Enterprise), and Generic.

  Estate Agencies/ Broking/Valuations    
Exempt Micro EnterpriseAnnual TurnoverLess than R2.5 million
Qualifying Small EnterpriseAnnual TurnoverLess than R35 million Or >R2.5m but <R35m
GenericAnnual TurnoverMore than R35 million

It works in tiers based on the annual turnover, with EMEs having the smallest at under R2.5 million and Generic businesses making more than R35 million annual turnover.

When it comes to BEE points, it’s a little easier for bigger real estate agencies to get them. Let’s look at why:

BEE points are based on the Amended Property Sector Code (APSC) of 2017. This doesn’t affect the EMEs (as it says in the name, these businesses are exempt), but the minute an agency makes more than R2.5 million in annual turnover, it is recognised as a QSE. QSEs need to obtain a minimum of 40 BEE points to achieve level 8 BEE status (the lowest possible status above that of a non-compliant contributor) and thus get a valid, compliant BEE certificate, without which the PPRA won’t issue your FFCs.

The point system below is based on the amended Property Sector Scorecard:

BEE StatusQualificationRecognition Level
Level 1 Contributor>­ 100 points135%
Level 2 Contributor>95 but <100 points125%
Level 3 Contributor>90 but <95 points110%
Level 4 Contributor>80 but <90 points100%
Level 5 Contributor>75 but <80 points80%
Level 6 Contributor>70 but <75 points60%
Level 7 Contributor>55 but <70 points50%
Level 8 Contributor>40 but <55 points10%
Non-Compliant Contributor<40 points0%

How do you come by these points?

The QSE Scorecard assigns points as follows:

BEE ElementsQSE WeightingsGeneric Weightings
Ownership27 points30 points (+3)
Management Control9 points9 points (+2)
11 points (+2)13 points (+3)
Skills Development17 points (+3)19 points (+3)
Enterprise and Supplier Development35 points39 points (+4)
Socio-Economic Development2 points2 points
Total105117  

Looking at how BEE points are allocated, it becomes clear that a bigger business might find it easier to diversify its Ownership and Management Control and do more iro Enterprise Development.

Dykes highlights a few ways to earn these points:

  1. Ensure that you are registered with the correct Seta.
  2. Pay Skills Levies – 1% of payroll.
  3. If you have more than 50 employees, appoint a Training Committee.
  4. Provide training for the Training Committee and meet every quarter. Take minutes of the meetings.
  5. Verify that the training is QTCO accredited.

Note that these categories are far more nuanced than we can explain here. To learn more, contact a BEE solutions provider like Infinity Learning.

Contact a registered BEE verification company when preparing your documents for BEE certification.

A spanner in the works: QSEs must meet the 40 points minimum to obtain a certificate

Nkambule explained that “the PPRA’s position is that it will not issue an FFC unless a compliant BEE certificate accompanies the application. The accepted level of compliance is 40 points or more (BEE Level 8). You will not be issued a BEE certificate if you score below 40 (making your BEEE certificate non-compliant)”.

It all hinges on compliance versus validity

Acting executive manager of compliance at the PPRA, advocate Debra Vial, explains how the Authority interprets whether a compliant and a valid BEE certificate are synonymous, “Both BEE legislation, as well as the PPA legislation, require a valid BEE certificate…If that validity did not encompass compliance, it would defeat the objects of the Act…particularly given that our legislation specifically identifies transformation as one of those objectives of the Act”.

She notes that from the PPRA perspective, validity needs to include compliance. She notes that having something valid is one thing, but whether it’s compliant or not is another. If, for example, a person has a valid driver’s license (in terms of issuer and period), but it’s been suspended, then the license may still be valid but not compliant, and the driver can’t drive with it.

Here’s the rub:

Jan le Roux, CE of Rebosa, acknowledges that the real estate industry is far from transformed—the transformation figures for employees are below 30% and for principals below 20%. He believes that most of the industry agrees with the need for and supports transformation.

Le Roux shares, “Although the big national brands hold about 35% of the market most of them are constituted of a collection of small entities that face the same challenges as other small businesses and close to 65% of the market is serviced by smaller firms, one-man bands, and mom-and-pop shops. How realistic is it to expect these small firms (the vast majority of the market) to become BEE Level 8 (the minimum compliance level) compliant?”  

“The previous board chairman and several PPRA executives have assured me over many years that the certificate is valid if it has been issued by a proper verification registered with SANAS (South African National Accreditation System) and that no minimum score is required”.

He shares that the bulk of BEE certificates obtained with the previous round of FFC issued in 2023 were most likely non-compliant.  “I would guess that of the almost 6,000 certificates issued, most would have been far below the 40-point mark. So, the PPRA has issued FFCs even though the minimum BEE score was not met. Our information was that the process was more about collecting information and that there was no minimum requirement”.  

The next round of FFCs will be issued in 2025, and it would now seem that the PPRA is insistent on implementing a requirement for what it is calling a valid BEE certificate – meaning that applicants earning over a certain threshold must meet Level 8 requirements.

We are reaching out to the PPRA for comments regarding the feasibility of the majority of small agencies reaching this target within the next nine months or at all. While it is laudable to promote industry transformation, one could ask whether, in strictly adhering to BEE requirements, the PPRA may not destroy a significant section of said market, as the requirements do not align with the industry realities.

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