PROPERTY & INVESTMENT
Should estates take out a loan to finance the levy deficit ?
UNPACKING PROJECT LOAN FACILITIES
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Homeowners living in estates pay a monthly levy towards their community scheme . It covers monthly expenses like management fees , maintenance , insurance and security , to name but a few .
However , if some owners fail to pay their monthly levy , community schemes can ’ t afford to pay these costs . They ’ re left with a few options : increase the levy for paying owners to cover the shortfall , decrease monthly expenditure , or turn to debtor finance . All these options have their pros and cons . Getting paying owners to cover the shortfall could feel like a punishment and alienate those who pay . Cutting back on expenditure may not be feasible in an environment where costs are increasing , and it could mean that vital repairs are not carried out properly , if at all . For others , debtor finance may be the only option . Here we unpack how estates can use these financial products to their advantage , and we highlight some of the pitfalls .
How does it work ?
When it comes to levy finance there are a few options to consider . ‘ With debtor finance , Propell would finance 80 % of the shortfall left by defaulters . The community scheme receives the monthly levies from paying owners and 80 % of the levies not paid by defaulters from Propell . Paying owners are thus not burdened by the shortfall left by non-payers ,’ points out Andre van Schaik , CEO of Propell . Willie Roos , CEO of Stratafin , adds : ‘ There are variations on the theme – in some instances the lender will drive the collection process , and in others , the scheme will be responsible for its own collections .
‘ The monthly contributions by paying members are used for reducing the interest and the revolving loan , and then a new revolving loan would be available for the next month , which the scheme would inevitably take as the defaulters remain in
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