Nov 2, 2020

The Effect Of The New Property Sector Codes On Companies Operating Only In The Private Sector

B-BBEE, as we all know, has a huge effect on the way we do business in South Africa. Even though it may not personally affect you, it is still essential to know why B-BBEE was introduced and what it means for the country. 

While B-BBEE was implemented by the Government to rebuild what has been lost, building the country up has been the main focus for many companies and industries. While it will take a lot of work, such industries, including the property sector, can benefit from embracing the transformation. Just to list some of the positive outcomes of B-BBEE compliance, thousands of unemployed people received sponsors for learnership courses and due to their higher education, have been offered employment. Career advancements and promotions have been offered as employees become more skilled and educated.  Bursaries issued covered tertiary education and accommodation costs enabling post-graduates to be employed in their field of expertise. Small start-up black-owned business not only become economically sustainable but also offering job opportunities as well as learning and skills development opportunities to staff and non-staff members.

As you might or might not know, B-BBEE has been divided into industry sectors and each sector has its own legislative provisions and requirements, including calculations and targets for the relevant elements.

Should you be in the housing industry, commercial property industry, attend to land zones for development or your biggest source of income fall under the property sector it is very important that you familiarise and understand B-BBEE compliance and the 2017 Property Sector Code. On 9 June 2017, the property sector came into effect and as with all sector codes, this brought some changes to calculations of B-BBEE compliance within the property sector. The new Property Sector Codes also makes provision for Estate Agents. This means that property practitioners will not be evaluated under the general codes but are subject to additional requirements and thresholds.

Estate Agencies need to pay special attention as the draft Property Practitioners Bill has an additional requirement that a Fidelity Fund certificate may not be issued to a practitioner who is not in possession of a B-BBEE certificate.

For the property sector, entities are classified into three different groups based on their annual turnover, and the turnover threshold for each group differs. With regards to eligibility as an Exempted Micro Enterprise (EME), for asset-based entities the threshold is R80 million and R10 million for service-based entities. However, the threshold for estate agencies, broking companies and valuation companies has remained at R2.5 million. The Qualifying Small Enterprise (QSE) thresholds have been adjusted to R400 million, R50 million and R35 million respectively.

The property sector now also makes provision for enhanced recognition for EME’s and QSE’s given that 51% black-owned EME’s and QSE’s automatically qualify for a Level 2 Affidavit, and 100% black-owned EME’s and QSE’s for a Level 1 Affidavit. Should these enterprises require a BEE Certificate, they will need to do a full BEE rating on each element under the QSE Scorecard.

It is also important to note that for each subsector the compliance requirements on the scorecard for each element may differ slightly to those of other subsectors. These requirements are unique to the industry and other sectors or industries. Provision has made in the property sector for companies that will not be able to report under certain elements due to the nature of the business. For example, a property-owning company usually only have management and no other employees and is therefore they are exempt from the Employment Equity and Skills Development elements. It is therefore of utmost importance to take note of all the elements and which of them may be applicable to your business.

How will B-BBEE compliance or non-compliance affect my business and why should property sector companies bother to be B-BBEE compliant if they only deal with the private sector?

The answer lies in the ripple effect of compliance or non-compliance which could extend further down the supply chain than you imagined and could prevent, for example, a company from supplying goods to you, whether it is stationary or stamps to a conveyancer or building material to a developer. It might have a bigger impact on business than you realise. Some companies change suppliers due to their current suppliers being non-compliant.

The fact of the matter is, the requirements for each sector is getting stricter with every amendment, and only attending to B-BBEE at a later stage might have a huge impact on your company’s expenditure and it will be even more difficult to adapt.

To proceed with and obtain a successful B-BBEE rating your company needs to meet the criteria to advance economic transformation and enhance the economic participation of ‘’black’’ people as defined by the Act. The level of compliance will be based on the points accumulated for meeting those criteria. The scorecard elements which need to be complied with together with the targets and points allocation of each element varies between different types of property sector entities as mentioned above. A few examples for the differences within the Property Sector are:

  • With regards to the ownership element additional points are allocated to financial support rendered to black property owned and controlled companies;
  • Unlike the Generic Codes, the Amended Property Charter continues to have separate Management Control and Employment Equity elements;
  • No points are allocated under Management and Control for Black Senior, Middle and Junior management;
  • Under the Skills Development element, the target is slightly lower at 5% and the only mandatory training as defined by the Estate Agency Affairs Board regulator’s act and the South African Council for the Property Valuers Profession qualification for valuators will qualify as skills development contributions for the Estate agents and evaluators;
  • Economic Development is a unique element to the Amended Property Codes. The element now only measures economic development investment in under-resourced areas. Generic entities may also elect to contribute towards economic development programmes. Where a QSE has not engaged in property development for that year, this element will not be applicable.

As you can see, the Property Code is a revised version of existing codes but the criteria just became stricter to meet. It is advised that a B-BBEE professional is consulted in order to provide you with the necessary and ensure your company is prepared for verification under the relevant sector. 

It seems as though B-BBEE will affect all of us at some point in some way or other, whether you merely try to better your business model or aim for the representation of the demographics of the rainbow nation of South Africa, B-BBEE and compliance thereof will be advantages to your company before you know it. So whether you do B-BBEE verification as an addition to good deeds already done, or you have to do B-BBEE as you tender for Government grants or are required by suppliers, whatever the reason, and however it is implemented, B-BBEE has become such a huge part of the South African economy and will sooner or later have an impact on the way you do business.

Contact your SEESA BEE Advisor to assist your business with any BEE related queries you might have alternatively, SMS the word “SEESA” to 45776 for an expert legal advisor to contact you.

About the author:

Reanda van Wyk started her career at SEESA Pretoria in August 2020 a BEE Legal Advisor. Reanda was admitted as an attorney of the High Court of South Africa in 2017. She obtained her Bachelor of Commerce in Law (BCom Law) and Baccalaureus Legum (LLB Law) at the North West University of Potchefstroom.

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