Like many of its counterparts in the developing world, Africa has been swept up by the tide of urbanisation. Spurred on by rapid population growth, urban regions in the continent’s flagship economies, have expanded significantly. In South Africa, this has translated into the increased development of sectional titles, many of which house both residential and commercial units. When it comes to protecting these multi-faceted properties, insurance cover can become complex.
Elaborating on this is Lindiwe Matlou, Head of Santam Real Estate who says that “experts estimate that by 2050, a quarter of the world’s population will be African. This of course has multiple implications for a range of sectors, with real estate being no exception. Currently, there are around 56 000 sectional title schemes registered in South Africa which are both residential and commercial in nature.
Combined-use complexes may very well become the norm, and we’re seeing this at scale in cities like Cape Town. A good example of this is Harbour Arch, a six-tower behemoth that is set to become the CBD’s first large-scale, inner-city, mixed-use precinct. The development will house a blend of restaurants, bars, offices, hotels, health clubs and apartments.
From an insurance perspective, it’s important for property investors to navigate the complexities involved when multiple stakeholders are involved.”
Claim processing in sectional title properties
In the case of freehold properties, the owner would be responsible for insuring the building and – in most cases, its contents (depending on whether it is occupied by the owner or leased by tenants). In contrast, the body corporate would be responsible for taking out adequate cover for all the buildings within a sectional title scheme, whether this be the individual housing units or common property areas.
Therefore, for example, if a unit within a building that is part of a scheme is impacted by adverse weather which results in extensive roof damage, the body corporate would put in the claim with their insurer. As Matlou explains, the most common claims made by the body corporates of sectional titles are geyser-related issues and storm damage. With the effects of climate change becoming more pronounced, claims related to natural disasters will likely increase in the near future.
Insurance factors to consider
It's important for owners to consider that sectional title insurance only covers the ‘brick and mortar’ part of residential schemes and common property, as opposed to its moveable contents.
Furthermore, owners are responsible for initiating claims via the body corporate, rather than claiming directly from insurers in their own capacity. A tenant’s claim needs to go through the unit’s owner, before being escalated to the body corporate for processing. Before being processed, it should be signed off by a trustee or the managing agent. If an excess is due, the owner will be responsible for paying it, according to the Sectional Title Act.
Sectional title unit owners are also allowed to enquire about the insured value of their property and request that this be increased or reviewed on an annual basis (usually as part of the agenda for the annual general meeting). Requests of this nature should be accompanied by a recommendation to the trustees to check that the recorded value of the entire building is correct, as body corporate rules require that a scheme is never under-insured.
How to choose a sectional title insurer
When it comes to finding the best real estate insurance cover, body corporates should choose an insurer with a robust track record and a deep understanding of the regulatory environment. Here, as Matlou asserts, “doing a deep dive into the insurer’s claim pay-out history can go a long way in making the best, most informed decision.
The insurer you partner with should have an innovative product selection with a wealth of specialised solutions that are adaptable to the evolving environment. It’s also important to choose a policy that provides additional cover for things like public liability (Santam covers up to R100 million), trustee liability (Santam offers up to R10 million), as well as aspects such as geyser repairs.
To ensure the longevity and efficiency of water heating systems, it is crucial to do regular maintenance. In particular, the timely replacement of anodes plays a key role in preventing corrosion and extending the lifespan of geysers. Following these guidelines not only promotes performance but also helps avoid costly repairs or premature replacements
Apart from what the insurer has to offer from a product perspective, it’s vital to look into how proactive and interactive their team of advisors is – having a risk specialist who can provide sound technical and financial assistance is a huge plus. Lastly, it’s also a big advantage to choose an insurer that’s got a future-forward approach to insurance and is in-tune with the latest developments in the real estate market, including emerging risks such as cybercrime.”
Technology and the road ahead
In terms of what the future holds for sectional title stakeholders, digital technology is set to be the biggest game-changer. With the Internet of Things becoming ever more ubiquitous and more owners wanting to create ‘smarter’ living spaces, insurance policies will need to keep up with this high rate of change.
Already, Santam is using smart geyser technologies to manage potential problems before they develop. These technologies also machine-learn people’s usage patterns and can control temperatures remotely.
Cybersecurity will be another focus. By 2050, it’s estimated that the number of connected, smart devices will exceed 50 billion. This means ample opportunity for sophisticated cybercriminals. Real estate products will need to answer this with adequate cyber cover (Santam offers cover of up to R1 million) and ongoing risk management strategies with clients.
As Matlou concludes: “The real estate risk landscape is evolving at pace with the emergence of ‘smart cities.’ As living arrangements get more unique and complicated, it’s critical to ensure the right kind of cover for optimal peace of mind and to secure financial protection for all stakeholders across the value chain.”
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