11 November 2019
“I’m the principal of a small real estate agency that I started with my wife. Our turnover is about R4 million a year and I have 10 people, mostly agents, working for us. We are all aware of the new Property Practitioners Act. However, I understand that there are also BEE implications for small property agencies like mine? I’m very concerned about this and wonder if you could explain how it will affect my agency.”
The Property Practitioners Act of 2019 (“PPA”) was signed into law by the President on 19 September 2019, with a commencement date to be proclaimed at a later date. The PPA has as one of its main objectives the transformation of the property sector.
When breaking the PPA down to establish what it means for a property agency, the following sections should in particular be taken note of. Section 47 determines that every property practitioner must, every three years, apply for a fidelity fund certificate. Section 48 states that no person or entity may act as a property practitioner without a fidelity fund certificate. And importantly…. Section 50 further states that a fidelity fund certificate may not be issued to a person or entity that is not in possession of a valid BEE certificate. The effect of these three sections read together is that every real estate business, irrespective of size or composition, must have a valid BEE certificate to be able to trade as such.
The question that now arises is what a “valid BEE certificate” means and what should real estate businesses do to obtain a valid BEE certificate. At this stage we cannot confirm what exactly a “valid BEE certificate” means and we will have to wait for clarification of this concept. We are of opinion that this will mean at least a compliant BEE certificate, which could include a level 8 status at the very least, being the lowest level compliant certificate that can be obtained.
To obtain a BEE certificate it then becomes important to determine in which category your business falls. The Amended Property Sector BEE Code of 2017 (“Property BEE Code”) determines the following categories for real estate agencies:
EME (below R2,5 million turnover). An EME is exempt from BEE which means that these entities only have to do an affidavit to obtain a level 4 BEE status. These entities do not have to go through a formal BEE audit or verification process.
- QSE (R2,5 million – R35 million turnover). A QSE needs to go through a BEE audit and will need to have its status verified against scorecard verifying elements such as ownership, management, employment equity, skills development and others. QSE entities have lower targets and less stringent requirements compared to Generic entities. QSE entities which are 51% black owned will be exempt from going through a full BEE audit and can receive a level 2 BEE level via an affidavit.
- Generic (R35 million and above turnover). A generic company has to go through a full BEE audit with comparatively high targets for each of the elements.
Even if the interpretation holds true that a “valid BEE certificate” means a level 8 status, QSE & Generic real estate entities will find it rigorous and potentially quite costly to achieve a level 8 status, due to the following factors:
- Many estate agencies are smaller family owned businesses which will find transformation in the elements of ownership and management a challenge.
- Most real estate agencies possess a flat management and employee structure. You generally have a principal, administration and estate agents.
- The skills development element will be challenging as agencies generally focus on informal or CPD type training with many interns paying for the formal (NQF) qualifications themselves. Agencies will likely not have a workplace skills plan and annual training report in place which will mean that they will not receive any recognition for skills development even though they might have spent a lot of money on skills development initiatives.
- The convergence of the National Minimum Wage Act (“Minimum Wage Act”), the PPA and the Property Sector Code may necessitate restructuring of the property industry. We foresee the following potential changes or challenges:
- The traditional commission-based remuneration model might have to change as the Minimum Wage Act states that employees must receive a minimum wage of R3500 per month.
- The Minimum Wage Act also prescribes a minimum stipend payable to learners on a learnership or internship based on the NQF level of the applicable course and the credits earned by the learner. Based on these factors interns on a SETA registered internship will likely have to receive a stipend from R2500 upwards per month.
- Estate agencies will be forced to invest time and money into the recruitment and training of new employees and interns as these appointments must be made strategically taking account of factors such as salary costs, training costs, transformation and income generating capacity of the recruits. Agencies may in the past have appointed numerous new agents and did not necessarily invest much in them in training and development as these appointments were commission based with limited financial consequence to the agency. This will challenge agencies to transform as agencies will likely have to be more selective with new appointments.
It is clear that the PPA and its provisions cannot be read in isolation when it comes to transformation in the property sector. Real estate agencies are entering a new and to some extent unknown world in respect of BEE compliance, transformation and change. Your business will also need to meet the new requirements and our advice would be to be proactive and take the necessary steps to be able to comply with the new rules as some of it may not be a simple formality to just become BEE compliant.