The residential community industry – challenges, opportunities and threats

4 min read

Through the efforts of The Association of Residential Communities (ARC), members of the industry come together on a regular basis to explore best practices and share experiences. During these sessions, which are held across the country with over 100 member estates in May 2017, we explored the impact of the different environments on the industry and conducted a PESTEL (Political, Economic, Social, Technological, Environmental, Legislative) and SWOT (Strenghts, Weaknesses, Opportunities and Threats) analysis. The following results emerged:

 

The political environment

• The increase in protest marches and the violence that goes with this is reaching the gates of residential communities, where the blockage of an exit of a residential estate is a soft target for these demonstrators.
• The publicity around the political environment in South Africa is affecting international investment purchases of property in residential estates and the development of new estates, thus impacting on property values and sales. Rentals, however, have increased because of this.
• Service delivery of local government, as well as fraud and corruption, which leads to increased taxation.

 

The economic environment

• The domestic economic situation will put strain on the industry’s ability to conduct meaningful financial planning specifically related to reserves and investments for future repairs and maintenance of assets.
• Junk status ratings will cause concern amongst property investors where rentals will increase but properties could be sold at below market value.
• Inflated costs of security and other services, including water, will impact on future levies on homeowners.
• The ability of members to pay levies and other costs stipulated by the HOA will be affected by the economic climate.

 

The social environment

• Trade unions could target residential communities to gain recognition agreements with the HOA.
• The introduction of higher minimum wages may make it more difficult to employ staff.
• Dealing with cultural differences of members and residents, specifically when it comes to holding cultural events and religious celebrations.
• The increased use of drugs amongst the youth is becoming more prevalent.

 

The technological environment

• Security technology and the availability of innovative solutions require staying abreast with technology. Choosing the most appropriate technologies to suit the environment and the region is costly and time-consuming.
• Estate management technology solutions are becoming more widely used to ensure sound communications and administration.
• Social media and the ease with which members can cause damage to the reputation of the community is on the increase, especially where social media is used to spread unfounded rumours.
• Ensuring the protection of personal information and confidentiality is a high-risk issue because of the advances in technology and the increase in hacking activities.

 

The environmental environment

• Water quality and rights to water.
• Alien species and the legislated requirements for the planned removal of these.
• Energy and the pressures placed on communities to install alternative power solutions.
• Waste management as a potential key imperative for residential communities.

 

The legislative environment

• The emergence of a regulatory body (CSOS) and its inability to competently adjudicate on disputes could lead to poor decisions being handed down.
• The POPI Act, and the increased onus on directors to ensure proper control and compliance for the protection of personal information, will increase the liability risk facing directors and trustees.
• Disproportionate rates and taxes applied to owners within a residential community
• The Property Practitioners Act, once promulgated, could affect estate managers and directors.
• The existence of contradictory legislation, specifically regarding the Companies Act and other regulations.
• New architectural regulations relating to SANS 10400

 

Strengths

• The wealth of the members of the HOA allows for the HOA to be able to afford security and other services that are necessary to ensure the safety and security of people living in organised residential communities.
• An increased level of unity amongst residential community management, where networking and sharing of ideas and solutions is practiced.
• The residential community product is sound in relation to creating a safe and harmonious lifestyles for residents.

 

Weaknesses

• The way HOA companies and other schemes elect directors and trustees is a potential weakness in that these leaders are not elected because of their skills or knowledge in residential community matters, but rather as a simple nomination by a fellow member.
• Lack of proper succession planning and the current average age of estate management.
• Disparity in recruitment and employment practices of management staff, specifically on salary structures and other benefits.
• No common approach to budgeting and financial planning, specifically relating to financial reserves for future repair and replacement costs.

 

Opportunities

• Through organisations like ARC, there remains the ongoing opportunity to grow membership of most if not all residential estates in order to maintain a strong lobby group to challenge government and other institutions on issues that negatively impact on the industry.
• The professionalisation of the estate manager’s position and the awarding of professional designations to staff.
• The creation of a single voice for the residential community industry.
• The establishment of social responsibility programmes assisting underprivileged communities.

 

Threats

• Government and other legislative bodies who claim to have a right to intervene regarding the rights of an HOA to self-govern remain a threat.
• Lack of public awareness on the roles and responsibilities of the HOA in respect of applying rules and regulations, resulting in poor PR and negative publicity.
• Lack of awareness amongst national and local government of the value all residential communities add to the economy as well as government objectives make the industry and individual estates a target for increased taxation.