Property Practitioners Act & Regulations: Department briefing; with Deputy Minister

Meeting report

As the Chairperson was unable to attend the meeting, Mr M Mashego (ANC) was nominated as acting Chairperson.

Deputy Minister’s introductory remarks

Ms Pam Tshwete, Deputy Minister of Human Settlements, Water and Sanitation, said that the Department was before the Committee to present the Property Practitioners Act (PPA) and the Property Practitioners Regulations (PPR).

The private sector had been slow in transforming the sector, and something needed to be done to address this. There were very few black people in the sector, and there were no black practitioners in the Northern Cape and the Free State, and government had to correct these imbalances. The Fidelity Fund Certificate (FFC) was a trading licence an estate agent required to do business, and if agents did not have one and continued practising, they were breaking the law. The estate agent would also struggle to do business, because no estate agent would be paid commission if they did not have a license.

She said that the Covid-19 pandemic had affected peoples’ incomes, but the FFC licence did not stand in the way of the possibility to invest, grow and develop the property sector. The PPA made provision for transformation of the process it took to become an estate agent. The process of becoming an estate agent in South Africa required one to invest in education, which was not affordable. The transformation the sector needed was where black youth and women also played a role in the buying and selling of property. One of the aims of the Act was to attract young people to the sector, to make it an open area for residential and commercial property management.     

Property Practitioners Act 2019

Adv Khwezi Ngwenya, Chief Director: Legal Services, Department of Human Settlements (DHS), took the Committee through a detailed presentation of the Property Practitioners Act, which included the purpose, background and the objectives of the PPA. The presentation also included the contents and proclamation on the PPA’s commencement.

The following were the objectives of the PPA:

• To transform the property market by ensuring that it was reflective of South Africa’s demographics.
• To create alignment and synergy to the constitution and other relevant legislation, such as the Promotion of Administrative Justice Act (PAJA), the Consumer Protection Act (CPA), etc.
• To enhance corporate efficiency.
• To embark on a drive to professionalise the real estate industry.

He then described the contents of the PPA.

Chapter one of the Act dealt with the definitions, objects, application, establishment and functions of Authority. The Act defined “ Property Practitioners” to include everyone involved in the selling, purchasing, letting, renting, financing and marketing of property.

Chapter two of the Act provides for the governance and structures of the Property Practitioners Regulatory Authority (PPRA). It also provides for the composition, appointment, disqualification, dissolution, termination, management of conflict of interest, code of ethics, powers and duties of the members of the Board and committees of the Board.

Chapter three provides for the appointment of the Chief Executive Officer, staff of the Authority, management of conflicts of interest within the Authority, and the delegation of functions and powers by the chief executive officer (CEO).

Chapter four provides for the establishment of the Property Sector Transformation Fund, exemptions in respect of trust accounts, as well as the property research centre. The Act stipulates that “when procuring property-related goods and services, all organs of state must utilise the services of property practitioners who comply with the broad-based black economic empowerment and employment equity legislation and policies.” The Act further provides for exemptions in respect of accounting records and trust accounts.

Chapter five provides for compliance and enforcement measures, and for the appointment, powers and duties of inspectors to ensure compliance. It also describes the procedure for lodging complaints of non-compliance. Inspectors were empowered to search premises and seize documents from property practitioners where there was non-compliance with the Act. They were empowered to issue compliance notices for non-compliance for a person to comply within a specific time. In the compliance notice the authority may determine a fine to be paid by the person concerned. The chapter further provides for mediation, adjudication and an adjudication appeal committee.

Chapter six of the Act provides for the funds of the Authority, and the financial year of the Authority.

Chapter seven provides for the continuation of the Estate Agency Fidelity Fund under the new name, “Property Practitioner’s Fidelity Fund.” It provides for the management and control of the Fidelity Fund, and regulates the investment of money and payments of funds from the Fidelity Fund.

Chapter eight regulates the application for a Fidelity Fund certificate, and prohibits rendering service without the Fidelity Fund certificate.

Chapter nine regulates the conduct and behaviour of Property Practitioners through the code of conduct, sanctionable conduct, prohibition of undesirable practices and measures concerning the control and supervision of candidates for Property Practitioners. It also regulates franchising in the industry.

Chapter ten of the Act regulates consumer protection and provides for a mandatory disclosure form, language of agreements, consumer education and information.

Chapter eleven of the Act deals with the general matters, which includes the making of regulations, penalties, the delegation of powers by the Minister, legal proceedings against the Authority, the use of the name of the Authority, transitional provisions, repeal and short title, and commencement  of the Act.

Property Practitioners Regulations, 2020

Adv Ngwenya then took the Committee through a presentation of the Property Practitioners Regulations (PPRs) of 2020. This included an overview of the legislative mandate, and the processes and objectives of the regulations. It discussed key components and provisions of the regulations. It also included the regulations and the proclamation on the commencement of the Act.

He said the objectives of the Regulations were to give effect to the legislative provisions as contained in the PPA; to give effect to the commencement of the Act; to provide substance, clarity and certainty on the legislative provisions as contained in the PPA; and to set out the administrative processes and procedures towards the implementation of the PPA.

The strategic functional areas aimed to promote consumer protection; to regulate the property market; to regulate the code of conduct of practitioners; and to transform the property market to be reflective of SA’s demographics.

He listed the structure of the Regulations as the following:

• Chapter 1: definitions and exemptions.
• Chapter 2: transformation of the property market.
• Chapter 3: compliance, enforcement and dispute resolution.
• Chapter 4: fees and Property Practitioners Fidelity Fund.
• Chapter 5: Fidelity Fund Certificates.
• Chapter 6: trust accounts and details of auditor.
• Chapter 7: training, conduct and consumer protection measures.

• Chapter 8: administrative and other matters.

Discussion

The Chairperson said that he was happy with the objectives of the PPA and the PPR. He indicated that if the Department wanted to ensure transformation in the sector, it could be reminded that it was over-reaching because the Estate Agency Affairs Board (EAAB) was independent. The board would continue to do its work, irrespective of the Department’s mandate, and when the Department wanted to intervene it would be reminded by the board’s members that the board was independent. He asked the Department how it planned to address this issue, because when the mandate was implemented, the EAAB would raise the issue with it because it had the capacity and the money, and the members were educated enough to make the decisions.

Mr M Tseki (ANC) said he welcomed the PPA and the PPR because they would take the country forward and to a brighter future. He asked the Department what recourse a buyer of a house had if the conveyancer, who had been de-registered after a disciplinary process, absconded with the deposit on the house. He also referred to cases where estate agents sold houses that were still occupied, and would then claim the buyer had signed the documents willingly, but had not read them thoroughly. He asked if the Department would assist the consumer because in some cases the buyer was excited about buying a house for the first time, and did not read the fine print of the contract. He said there were estate agent doing the wrong things, and when the estate agent went through the adjudication processes and was found guilty, the estate agent would change the their names.

Ms C Seoposengwe (ANC) said the PPA and PPR legislation was long overdue. The PPA addressed the transformation issues that the property sector faced. It would prevent the property sector from being predominately white, and would address the imbalances of the past. She was happy that a fund was available for student accommodation, because it had been monopolised to ensure that people who did not have money would not be accommodated. She asked the Department if the fund would assist people with training. If it did, then the fund was very empowering. 

Ms N Mvana (ANC) said that the PPA was very technical, and asked how communities would be able to grasp what it said. She asserted that the property agents had abused the consumer, and asked if the Department could fast-track the PPA. She requested that the Department simplify the PPA so that people would be able to understand it.

Ms E Powell (DA) said that the PPA made no distinction between estate agents and property practitioners, and the regulations focused mainly on estate agents’ qualification requirements. She asked the Department if there should not be a distinction between the estate agents and property practitioners. Industry representatives had raised concerns that the PPA had excluded property developers from the definition of a property practitioner. There was a need to distinguish between property developers, because there were new lead developers and there were developers who managed estate agents after the development was done.

She said there was no distinction between individuals and businesses, although it was common practice that only businesses should have trust accounts. The regulations indicated that every practitioner must have a trust account, and this applied to companies and individuals with black economic empowerment (BEE) certificates. She asked how the Department would deal with these distinctions. She asked if managing agents and agencies who managed community schemes, specifically free home ownership schemes, were included in the definition of property practitioner in the PPA.

She said that once the PPA had been put into effect, estate agents would no longer be obligated to pay interest accrued on trust accounts to the authority to supplement the fidelity fund. Section 32 2(c) of the existing Act made provision for this, but was not being incorporated in the new PPA. This omission would have a serious impact on the budget of the authority. Last year, the interest that accrued had amounted to R42 million. She asked how the Department planned to address this issue.

She asked for legislative clarity on how Sections 41 and 47 interlinked in the new PPA, where the property practitioner had to apply every year and pay the required fee for a fidelity fund certificate. She said that the certificate was valid for three years, and wanted to know why the practitioners needed to pay a fee every year for the certificate. Chapter 8 made provision for property practitioners to apply for the fidelity fund certificate every three years with a payable fee.

She said the Committee knew that a practitioner could practice without a fidelity fund certificate, but every year there were delays in the issuing of certificates which was not the practitioners’ or agents’ fault. The Department committed every year that the matter would be addressed. She asked if the agent would be compensated for the work the agent could not do because of the delays in issuing the certificates in terms of the PPA and PPA. The agents were requested to be compliant, but what happened when it was the Department’s fault and not the agents’ fault.

She asked if the Department had considered drafting regulations or amending the Community Schemes Ombud Services (CSOS) Act to specifically provide for the regulation of managing agencies and agents on their conduct relating to home owner associations (HOAs) by providing a code of conduct for non-compliance or punitive measures, because these agents dealt with HOA funds and performed financial management services for the HOAs. Trustees could be held liable in the trustees’ personal capacity in terms of the free home scheme, and were not offered as much protection as trustees in body corporates, since their decisions were often informed by their managing agents. She asked the Department what could be done to protect trustees, and what punitive measures could be implemented to ensure that managing agents did not provide trustees with a poor service. Would the powers and functions of the CSOS be expanded to provide, or to distinguish between, the HOAs and managing agents?

The Department had referred a lot to development, training and qualifications to reach its transformation ideals, and it was honorable in theory. She asked how the training, development and qualification model would differ from the current qualification requirements of the National Qualifications Framework (NQF) level, and a one year internship.

Ms N Sihlwayi (ANC) said that although the PPA had arrived late, it would heal the wounds of the country’s people. The presentation had shown the Committee that the country had not dealt with the issues of apartheid that were still in the economy. People had been sent from pillar to post, and the regulations indicating what property managers must regulate were not clear, which was why the majority had been exploited by the minority for years. It was therefore important that the Department was clear about the processes involving consultation, training and empowerment, to ensure that people understood what the Act was about. The workshops would help everyone understand the areas of oppression that existed in the previous Fidelity Fund Act (FFA). She said that the body corporates continued to undermine people. The state had to represent the interests of the people, even in the private sector, to ensure that there was economic justice for all. She expressed her excitement with the PPA which sought to dismantle the injustices of apartheid.                    

Ms S Mokgotho (EFF) asked if the Estate Agency Affairs Board (EAAB) had the capacity to handle the new responsibilities of the PPA. What did the Department plan to do, to ensure that disadvantaged individuals and youths who were unemployed gained access to information on how to become an estate agent or a property practitioner?

Department’s response

Deputy Minister Tshwete said that when she first read the PPA, she had asked herself how ordinary people would understand the Act, and she and the Department were committed to ensure that especially those who were disadvantaged would understand and benefit from the Act. Workshops were needed to educate the consumers, and Members of Parliament (MPs) could also attend the workshops to ensure that they could simplify the Act to others. The DHS, along with the EAAB, would conduct consumer drives, and she would be part of this initiative. The aim of the drive was that even people from the rural areas should benefit from the Act.

Adv Ngwenya replied to Ms Mokgotho’s question, and said the EAAB had the capacity to execute its functions in terms of the Act. The provisions in the Act allowed the EAAB time after the Act was in effect to be ready to implement it. After six months, the entity must be able to establish a transformation fund, and it could not give an excuse that there was not enough time to implement the Act.

He replied to the question on simplifying the Act, and said that the Department and the Ministry were collaborating with the EAAB on a programme to educate consumers and giving the consumer a better understanding of the Act. The programme would help to educate young people who were entering the industry for the first time, and the entity would be assisted by the establishment of the transformation fund to achieve its intended target of development.

He replied to the issue of training and empowering, saying that it was provided for under Section 21 of the PPA, which was provisioned by the collaboration of other entities and remedies from the government. The collaboration would assist in training and empowering rural communities.

The Committee had raised a very important point regarding the contracts of body corporates and the HOAs. The body corporates set up their contracts in a manner which was discriminatory and excluded practitioners from rural areas from participating -- the practitioner from the rural area had to pay a fee in order to participate.

He told Ms Powell that the Department would amend the CSOS Act. Under the Sectional Titles Schemes Management Act, the council was responsible for oversight on the body corporates’ contracts, and that the HOA was not discriminatory. The Department aimed to challenge the status quo of the contracts and to ensure that body corporates and HOAs become transformative in terms of its management rules. The CSOS needed to implement the Sectional Titles Schemes Management Act because it deals with the behaviour of the body corporates and HOAs.

He replied to Ms Powell’s last question, and said that in Chapter 4 under section 21 of the Act, provision was made for the mechanisms of the various empowerment programmes which did not just look at transformation, but also at the programmes the entity needed to implement when the Act was in effect from 1 April. When the entity indicated a socialisation programme, it meant the Department wanted to ensure that estate agents got full status, and that the owners of the business had to be previously disadvantaged. The Department wanted to draft this programme and recruit the required people to ensure that the principles were realised. He said that some estate agents worked on commission, and if they did not reach targets they would not be paid.

The state also had a role to play in sub-Section 21 of the Act, to ensure that previously disadvantaged agents got access to assets which the state wanted to dispose of. The Authority had the agents on its database.

He replied to Ms Powell’s question on the qualification requirements, and said that in order to become a property practitioner one had to go through the qualification process indicated by the entity. The property practitioner was required to do an internship for a year and complete an NQF level 4 and 5 qualification. The Department and the entity had realised that the qualifications process was the barrier to entry in the Industry. The Act encouraged the Authority to review the qualification process so that it could be obtained in a shorter space of time without breaking the rule of compliance. He said that it should not take three years to become a practitioner. To fast-track transformation in the industry, the barriers to entry needed to be identified.

He replied to Ms Powell’s question on the expansion of CSOS’s power under the Act, and said that the CSOS mechanism would continue to be enforced. It would ensure that the people who came up with discriminatory management rules would be dealt with. He agreed with Ms Powell, and said that the CSOS Act would have to be aligned with the intended purpose. The new Act made provision for the CSOS Act and for the establishment of the council to look into the management and conduct rules of the body corporates and HOAs to ensure that they conformed.

Regarding the issuing of the certificates, the Act made provision under Section 49 that there was a mandatory time period for the entity to issue the certificate ten days after the application. It there was a failure of the entity to issue the certificate within the ten days, the practitioner would be deemed to have the certificate in their possession. This was a very powerful legal instrument for the consumer, and this provision had been considered by Parliament.

He then replied to Ms Powell’s question on Chapter 8 of the Act, and said that the Department would look into dealing with this issue. Once the applicant had applied for the certificate, it was valid for three years with an applicable fee every year. The entity would contact the practitioner if there was an issue with the application, but the Department was trying to be progressive in allowing the certificate to be valid for three years, because if it had to be done it would be problematic for the entity and cause administrative issues. The Department was trying to keep up with other sectors like transport, which issued drivers’ licences that were valid for five years. The main aim was for businesses to focus on their business and not worry about renewing certificates, which was made provision for under Sections 46 and 47 on the validity of certificates.

He replied to the question on trust accounts. He said the Act provided a very powerful legal instrument which stated that a distinction was made and that the applicant could be exempted from being the holder of a trust account because the applicant was not involved in a property transaction. The fundamental distinction was that the regulations would not be applicable to the applicant because of the nature of the business. If management agents or property developers indicated that they were not involved in the property transactions, they could apply to be accepted, but if this was not the case and they were involved at any time, other role players could object to the application. Section 21 made provision for practitioners who earned below the amount indicated to be exempted from the trust account regulation.

He said the Department, together with the entity, was working on a programme to translate and simplify the Act. This was important, because the Act made provisions to ensure that the entity created awareness about it. 

He replied to Mr Tseki on how the consumer could claim redress, and said that provision had been made for this in the Act, and the reason it was not implemented was because of a lack of education and awareness. The fundamental distinction was that if the consumer could prove that the consumer had used a registered estate agent for the property transaction, then the consumer would be covered and could lodge a claim to the entity. The entity would investigate the matter, and if there was a positive outcome the consumer would be compensated for any losses because of the estate agent’s actions. The purpose of the trust account was to compensate consumers in these cases.

Regarding Mr Tseki’s question on the de-registered estate agents, he said that if the Law Society deemed that a particular estate agent was unfit to practice, the agent must be reported. In the case where the estate agency continued to use the deregistered agent, they could lose their licence after the disciplinary process conducted by the entity. The consumer needed to be aware that the consumer could claim and that a civil case could be made against the estate agent. The consumer needed to be protected and compensated when the agent was at fault. Consumers had to be protected in order for transformation to be realised in the sector. This was indicated in Chapter 4 of the Act, and the entity, with the help of the Department, would have a period of six months to ensure that all the required systems were in place in terms of the PPA and the PPR.

The Chairperson asked Adv Ngwenya to respond to the question on when the Minister could intervene in terms of the Act.

Adv Ngwenya replied that the Minister could intervene when the entity was not executing its function. The Act provided mechanisms and procedures for when the Minister could intervene, and the Act provided time frames for when regulations had to be implemented.

Ms Mamodupi Mohlala-Mulaudzi, Chief Executive Officer (CEO), EAAB, said that the Board was looking forward to the new regulations and legislation. It looked forward to the initiative in terms of transformation, education and estate agent registration growth. The EAAB would ensure that it would deal with enforcing the regulations and use the power the new legislation gave it, to ensure that the entities were compliant with Act.

Mr Mbulelo Tshangana, Director-General (DG), DHS, said that the Department needed a workshop to go through the PPR and PPA. During the Fifth Parliament, the Act had been a Bill at the time and a workshop was conducted involving all the stakeholders. During the workshop, the Department had asked that the CEO provide the statistics of the practitioners.

(Due to poor connectivity, a few of the DG’s comments were not captured).

There were two areas of wealth in countries -- the real estate and asset management businesses – and unfortunately these two sectors were untransformed in South Africa. He said that it was important to acknowledge that black people operating in the industry were under-represented. It was important that the sector represented the demographics of South Africa. He said that if the sector was not transformed, it would not be in the best interests of the Department, the Committee, Parliament and the country.

Follow-up discussion

Mr Tseki made an example where an estate agent would sell a house, but the buyer could not access it. Then the consumer would find out that there was a clause in the contract relating to a “voetstoots” (as it stands) stipulation. He asked the Department what action the consumer could take, and whether the consumer or the estate agent was at fault for not disclosing all the information.

The Chairperson asked the Department to explain what the term “voetstoots” meant in the contracts. People were suffering because of this, where an estate agent sells a house knowing that it is occupied.

Ms Powell said she had raised issues in previous meeting and sent emails to the CEO of the EAAB and the DG of the DHS, and she was still waiting for a response. She received a lot of complaints from estate agents. She asked the CEO if the call centres were functioning, and if she could confirm that people were being responded to. She indicated that she had 40 complaints on her desk from estate agents complaining they could not get through to the EAAB, and even she had tried getting into contact with the EAAB but had not received a response. She asked if the offices were open.

She asked the DG why an investigation had been launched into the EAAB, and suggested that if it was a serious matter that the Department should brief the Committee on why the investigation was being conducted, and present the findings of the investigation.

Department’s responses

Adv Ngwenya replied to the question about the “voetstoots” stipulation, and said that it could not compromise the individual if the house was occupied and the estate agent had not disclosed this information. The stipulation applied when one purchased a house and were not aware of its material defects. The law required that the estate agent disclose all the information that was known about the property. The consumer must lodge a complaint about the estate agent to the entity if the estate agent deliberately withheld information about the property, and an investigation would take place.

Ms Mohlala replied that the EAAB call centre had been functional since level 3. An outside organisation was rendering the call centre service for the EAAB. She requested that Ms Powell forward all the complaints about the call centre to her, because the EAAB had a service level agreement (SLA) with the service provider and if it did not render the service required, the EAAB would terminate its contract. She had responded to all the emails she had received, and suggested that Ms Powell’s email was not received because the lines were down at some point in time. The service provider had worked off site during the lockdown, but had since returned to the premises of the EAAB.

Mr Tshangana confirmed that the DHS was conducting an investigation into CSOS and the EAAB. He requested that the Committee allow the necessary processes of the investigation to take place, to ensure that the Department achieved its outcomes for the investigations. He said that service providers had been tasked to conduct the investigations, and when they were completed the Minister would brief the Committee on the findings.

Closing comments

The Chairperson said that Ms Powell would do a follow-up with the CEO, and if she was still not satisfied she could raise the issue again with the Committee.

Deputy Minister Tshwete thanked the Chairperson for chairing the meeting peacefully, and said she had noted the Members’ concerns.

The Chairperson requested that when the Department made practitioners aware of the Act, it should involve Members of the Committee.

The meeting was adjourned.