State of Estate Agencies in South Africa: briefing by Estate Agencies Affairs Board

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
12 September 2007
STATE OF ESTATE AGENCIES IN SOUTH AFRICA: BRIEFING BY ESTATE AGENCIES AFFAIRS BOARD

Acting Chairperson: Mr S Rasmeni (ANC)

Documents handed out:
Estate Agencies Affairs Board presentation
Interpretation of Acronyms

Audio recording of meeting

SUMMARY

The Estate Agencies Affairs Board gave a briefing on their activities. The new Board was turning around the affairs of the organisation. There had been various malpractices in the past, and this situation was now being remedied. The industry was growing with some 84 thousand registered agents and eighteen thousand registered companies. The Board was committed to transformation but there was a long way to go as only 4% of agents were black, and they were often confined to supporting roles in their companies. The core functions of the Board included registration, education, disciplinary hearings, claims and inspections.

Qualifications of agents would be upgraded by a new examination. The Board was working with the South African Qualification and the National Qualification Framework to recognise qualifications. It was important that a body of knowledge should exist which would increase the professionalism of agents. Training programmes were being launched for young previously disadvantaged girls in particular. Inspections had been held recently and the standard of compliance to the law was very bad. Agencies had been closed and agents had lost their licences as a result. There were also several criminal cases which had been completed or were still in progress.

Members were unhappy with the pace of transformation, and wished to see fast tracking mechanisms in place. They called for simpler contracts and for important clauses to be highlighted rather than hidden in the fine print. The affordability of property for first time buyers was raised but the Board pointed out that it was not entitled to meddle with competitive practices.

MINUTES

The Acting Chairperson apologised for the absence of the Chairperson, Mr B Martins who was out of town. He welcomed the Chief Executive Officer of the Estate Agencies Affairs Board (EAAB), Ms Nomonde Mapetla, and her delegation. This meeting was a follow-up on the state of estate agencies in the country.
 
Estate Agencies Affairs Board briefing

Ms Mapetla noted that one of the key challenges facing the industry was moving forward with transformation. She presented some background on the EAAB, which was the regulator of the industry and had been instituted by the Estate Agency Affairs Act of Parliament (Act 112 of 1976). She was an economist herself, and governments regularly intervened when self-regulation faded. The EAAB celebrated its 31^st anniversary in August.

When she took over as CEO, Ms Mapetla said that the EAAB was lacking in several corporate governance practices. A skills and qualification audit had been conducted, and it was found that several staff members did not have the necessary qualifications and had indeed misrepresented their qualifications. Some had left voluntarily, while others had to be forced. Some had taken complaints about their dismissals to the Council for Conciliation, Mediation and Arbitration (CCMA). The EAAB had not been audited for the three years before her appointment, and had received qualified audit reports and a disclaimer for that period. They had now enjoyed unqualified audit reports for the last two years despite their challenges. Training and recruitment of qualified staff were helping to alleviate the position.

Ms Mapetla presented the organisational structure of the EAAB. The directors reported to the Minister of Trade and Industry. A Chief Financial Officer had been appointed, and this would improve the financial functioning of the Board.

Ms Mapetla said that there had been dramatic growth in the size of the industry in recent years. There were now 84 000 registered estate agents in the employ of 18 000 firms. The agents had to renew their licences annually, and this was a source of revenue for the Board. She presented graphs to show that there was no increase in the number of claims being lodged against agents, and this was surprising given the increased number of agents. Banks were being asked to help investigate whether there were cases of malpractice.

She said that the industry was largely untransformed. Whites comprised 96 % of the industry. The Board was a founder member of the Property Sector Transformation Charter Process
And had contributed R350 000. The Property Charter Council (PCC) was housed at the EAAB offices, and the Board provided support to the PCC to the tune of approximately R342 thousand per annum. The Charter was meant to apply across all groups.

Ms Mapetla said that a Board of Directors had been appointed by the Minister following the dissolution of the previous Board. An induction meeting had been held earlier in the week. The core functions of the Board were under review by the Department of Trade and Industry (the dti), as it had to serve the current milieu. The functions emanated from the Act. Key elements were the enabling of the Board to increase fees by regulation, appointing the CEO as an ex-officio member and giving disciplinary decision of the Board the legal status of a court award. The property industry had developed. One of the new elements was the bond originator, which had been on the scene for seven years. These companies were unregulated. This was the only State Owned Enterprise (SOE) in which the CEO did not serve on the Board.

She listed other core functions of the Board. Regulation would be in the interest of the public. Registration was needed for new and existing agents. There were exclusions I the Act. Education and examinations would ensure good service. Disciplinary action was taken against agents where needed. Claims were paid from the Fidelity Fund. Unscrupulous agents still defrauded the public, and the EAAB investigated these claims. These investigations were thorough and hence time-consuming. Finally, the EAAB conducted inspections.

Ms Mapetla listed some achievements of the Board. The EAAB had previously used two computer systems which used different languages and did not communicate with each other. The SAP CRM system had been implemented to manage financial and business systems. The system had gone live on 1 September. There had been complaints about the EAAB’s communication with the public. This function had been outsourced to a Black Economic Empowerment compliant company. The answer time at the call centre had improved although they still strived to do better. There had been 390 disciplinary hearings. Of these, 242 had resulted in convictions, 41 in acquittals, 63 cases had been withdrawn and there were 44 settlements.

She said that education and training was one of the most important elements expected of the EAAB. The intent was to professionalize the industry and make it a career of choice. A recent road show had asked agents if this had been their dream job, and none thought so. The EAAB wanted to foster aspirations in this regard, and produce a respectable qualification. Ethics would become a greater issue, as would the creation of a body of subject knowledge. There was now a signed agreement with the Services Sector and Training Authority (SETA) which gave the EAAB the mandate to be the Certification Partner.

Ms Mapetla said that a syllabus had been drafted jointly with the South African Qualification Agency (SAQA) and SETA. A Content Task Team had been formed to review the work. Regulations pertaining to the programme had been submitted to the dti for approval, and been gazetted. There had been consultations with training service providers. There was a need to align requirements with the standards of SAQA and the National Qualification Framework. Accreditation regulations for service providers had been drafted. They believed in an exchange of information. There had been consultations since July 2005. The new syllabus and examination would come into effect in 2008.

Ms Mapetla said that so far in 2007 15 334 prospective agents had written the Board exam, as compared to 3 500 in the corresponding period in 2006. She pondered the reasons for this avalanche of examination candidates. The current exam consisted of forty multiple-choice questions, which were mainly of a legal nature. Candidates could learn by rote. If they thought they would not need to write the new exam, but this was an error. All would have to write the new version. The ability of current agents would be assessed. The RPL process was underway, and there was a portfolio of evidence. The RPL would continue until 2010, and would be extended if it was needed. It was part of a fast-tracking process. It had been established by trial and error. Candidates never got to grips with the running of the business side and this would be covered in the new syllabus.

Ms Mapetla said that the EAAB was mandated to perform inspections in the public interest. Seventeen inspections had been carried out in conjunction with the Financial Intelligence Centre (FIC). These happened in Johannesburg, Cape Town and Pretoria. The Board was extremely concerned with the findings. Only one agency, Gilbert Estates, was fully compliant with the Act. Three agencies were served with notices to close. Two had submitted audit reports which had to be withdrawn because they contradicted the findings of the inspection team. This was unprofessional, illegal and unacceptable. In future the EAAB will apply the law. All agencies that were operating illegally were disqualified. The submission of an audit report was crucial to their operations being legal. Almost all had corrected the errors and had been re-issued with their practice licences. The common trend was the mismanagement of trust funds.

She said that a check list was used during inspections. A key issue was to uncover dishonesty. Agencies kept clients’ deposits. There should be trust accounts for this purpose. Audit reports should be submitted within four months after the close of the agency’s financial year. Each Agency determined its own financial year. There was a lot of non-compliance. The three agencies which had been forced to close had appealed the decisions. She was concerned that if large companies did not comply with the law, then the situation could be much worse with smaller companies. The EAAB would rather warn agencies to operate legally than be forced to close them. The property market contributed 12% of the gross domestic product. She felt that there could be some leniency with smaller agencies, and each case should be dealt with on its own merits. There had been no inspections for thirty years before these, and that had been an error.

Ms Mapetla said that the submission of audit reports was mandatory, and no agency could be exempted. It was imperative that estate agents maintained trust accounts in the prescribed manner. There had been a lot of hue and cry. There was an impact on individual agents. Even if they were in good personal standing with the EAAB, their Fidelity Funds Certificates (FFC) would not be renewed if their principal was in a default situation. Failure to submit an auditor’s report carried a find of R500. She felt that this amount was ridiculous, as it would barely pay for one Cuban cigar. She hoped that this amount would soon be increased. Trust funds were overdrawn, or were abused to pay Unemployment Insurance Fund contributions and travel expenses. The legislation did not have the teeth to be enforced.

She then listed the EAAB’s future plans. There was a strong feeling about the need to develop skills and provide capacity for staff. This was particularly important in the fields of finance and registration. Performance management systems had cascaded from the corporate scorecard to all departments. They wished to improve efficiency, turnaround times and overall customer service delivery.

Ms Mapetla said that the EAAB wished to align its education and training programs with SAQA requirements and NQF standards. This would improve the professional standard of agents and also provide incentives and fast-tracking schemes for previously disadvantaged individuals (PDIs). Now that the Board had been appointed, they looked forward to a higher frequency of claims processing. In terms of the law the full Board had to preside over claims hearings. They wanted to target awareness campaigns for PDIs and other stakeholders about the role of the board. A thousand unemployed graduates would be targeted for learnerships and entrepreneurship tests. There were other dti enterprises underway to support this initiative, and it would contribute to ASGISA.

Ms Mapetla said that the EAAB planned to increase the ratio of recoveries to claims by using legal processes. Wrongdoers tended to go to ground before they could be held to account, and often then opened up another business in some other part of the country. An SMS system would be implemented to improve communication with stakeholders, including the dti and the office of its Director-General. The Board would take part in a girl child project to encourage young women to become part of the industry.

The CEO said that the Board’s communications in general were being addressed. The call centre was operating more efficiently after being outsourced. The average waiting time had been reduced from 45 to four minutes. She hoped to see still further improvement. The website had been redesigned and was being updated continuously.  The Board would continue its Agent quarterly magazine, which had won the ARELLO Communications award ahead of other international publications.

She said that the Board was scanning newspapers and taking note of the advertisements of agencies that were not registered. The public needed to be warned not to have dealings with such people. Another fund was needed to compensate the public for damages caused by non-registered agencies.

Discussion

Prof B Turok (ANC) said that this was an impressive report. It was nice to see that the CEO was rectifying a bad situation. The Committee had an oversight role. It had to take some responsibility for the sad situation that had arisen. He asked how the EAAB’s relationship with the dti worked in practice. He asked how the current situation had arisen, and what the meaning of the report was. Fine print in contracts was often a problem. He thought that he might be the only person who had read a property contract thoroughly, and had found some important conditions in the fine print.

Ms D Ramodibe (ANC) noted that only one agency had been found to be compliant during the inspections. Three had been forced to close their businesses. She asked under what conditions this had occurred, and if their closure was temporary or permanent. She noted the number of cases that were withdrawn, and asked if these involved allegations of fraud. She asked what the disqualification of agents entailed. She asked what happened in cases where agents defrauded clients.

Dr P Rabie (DA) noted that property had become very expensive in the last five years. He asked if first time buyers could be exempted from paying commission, or failing that be charged a lower rate, perhaps only 1%. The commission was a constraint on buyers. He agreed that the R500 fine for failure to submit audit reports was very low, and asked what figure would be appropriate. The size of the fine should perhaps be scaled relatively to the size of the account.

Mr L Labuschagne (DA) had attended an earlier briefing by the EAAB, and had received a good background. He also commented on the fine print in contracts. He asked if these should be regulated, or if a standard contract should be introduced. He also asked if they could be written in a language of the purchaser’s choice. There were three or four big clauses in any contract, and he suggested that these should be highlighted. He was assured that 99% of people were happy with their transactions. It was an interesting and confused market. Anyone could be an agent. If they did wrong, then the trust fund would pay compensation. It was a ridiculous situation. The industry was unregulated.

Mr Labuschagne asked if the inspections had started at the top. It was surprising that household names in the industry could not pass the inspection. He was a former attorney, and appreciated the seriousness of taking money from a trust fund. It was fraud or theft. He asked if the cases were reported to the police. It would be an option to publish the names of miscreants so that they could be named and shamed. On the call centre, he noted that callers were given a reference number for their complaint. He asked if this dealt with the problem or if there was no follow-up. He asked what the situation was regarding amendments to the Act.

Mr S Njikelana (ANC) trusted and hoped that the Board was taking actions. He asked how long the inspections would take as there were 18 000 companies registered. He asked if the inspection teams would reach the small towns and rural areas, and those agencies dealing with farms. He asked what happened to disqualified agents and if the EAAB took a pre-emptive approach. He asked what the policy was regarding membership of the Board, and why overseas persons were allowed to serve on it. He asked what the current situation was regarding reparations.

Ms Mapetla replied that the EAAB’s relationship with the dti was governed by the Public Finance Management Act (PFMA). The EAAB was a Schedule 3A institution, and had to submit quarterly reports to the dti as well as monthly management reports. The Board was appointed by the Minister through a public process.

Prof Turok asked if the only interaction between the EAAB and the dti was through written reports.

Ms Mapetla replied that before the members of the Board had been appointed, officials from the dti had formed an interim Board. There were monthly progress meetings with the dti, and this was still the case. The Board had been remiss in submitting reports. The vigilance had not been there. They met with the dti as often as possible.

Regarding the fine print in contracts, she said that there was a Code of Conduct which governed the contents of contracts. She was not sure if all agents knew about this. Agents were obliged to explain the terms of the contract to clients, but this did not always happen.

She said that the EAAB could not regulate the industry as this would lead to anti-competitive practices. There was a R500 000 fine for fixing tariffs.

The CEO said that the inspections had started with the big companies, even some of those big enough to be listed on the stock exchange. This had been a deliberate decision. Companies had to be registered. The Board had to be seen to be enforcing the law, although there had been negligence in the past. The Act gave the Board search and seizure powers. Companies had been warned, and there was still no compliance in many cases. Inspections had been held between October 2006 and May 2007. Only the main centres were being targeted initially. They would get to the rural areas in time. The bulk of sales were in the urban areas. In the rural areas, some people had been given land by chiefs.

Ms Mapetla said that agents were not supposed to direct buyers to a particular lawyer. Certain groups had been excluded from the property market. If an agency misbehaved, all its agents would be blocked. Conditions for re-admittance would be discussed and a special hearing held.

She said that it was a requirement to refer cases of fraud to the police. The Committee of Enquiry would give a recommendation of this. Sometimes persons alleged to be operating illegally simply vanished without trace. There were cases where agents relocated to Australia where their credentials were queried. This was often the only indication of their new whereabouts.

The CEO said that new market entrants were hesitant. She agreed that using an escalating scale for fines would be a good idea, but was not sure if the law would allow this. Agents were fallible, and did not always follow the law. They were doing a presentation to the call centre operators on frequently asked questions. These people needed to be knowledgeable. She had no comment on the naming and shaming suggestion. The situation should be allowed to develop. She hoped that publicity would cause an improvement in the process.

Mr Clive Ashpol (Manager Education and Training, EAAB) added that the Board was not in a position to exempt first time buyers from paying commission. However, the Minister of Finance had announced a rebate on sales of below R500 000. This had a positive effect. There was no new land being created, therefore it would be impossible to control rising prices, and property could become unaffordable. The seller paid the agent’s commission, and this was added to the price. He wished that the EAAB could intervene.

Ms Lindiwe Bulo (EAAB) spoke about amendments to the legislation. The dti had issued a draft policy document, and this was being discussed. Some changes might be incorporated into an amendment. This could extend the scope of the EAAB. Only registered management agents could operate trust funds. Some companies had no Codes of Conduct in place and were not part of the EAAB. Discussions were being held about capping funds.

Ms Mapetla admitted that non-South African citizens had served on the Board, but this had been an error. Foreigners were now specifically excluded. All the current Board members were South Africans.

Mr S Maja (ANC) was worried about transformation. He asked if there were any plans in this regard, and if not, what the Board’s plans were for its term of office.

Ms M Ntuli (ANC) said that for some time the property industry had been serving a particular sector. She asked if there was transformation on the Board, and with agents all over the country. The communal areas were not been served. Nothing was happening there, and people did as they pleased. She asked how the Board could engage with the chiefs and the Department of Housing. She asked who was involved there.

Mr Njikelana asked what the EAAB’s relationship was with the Institute of Estate Agents (IEA). He asked if property management companies were also covered. He asked about the backlog in licences. He asked if there had been any action arising from forensic audits, and if the Board could update the Committee on the outcomes. The Minister of Trade and Industry had been asked about property stocks, but this information was not available. The Committee was keen to see the new Board taking a leadership role. It would be helpful to hear about plans, profits and empowerment strategies. There was some confidence of success.

Mr Labuschagne felt that the dti should be represented on the Board ex officio. He asked if the Committee could be advised of the identity of the members of the Board, and if brief curricula vitae could be provided.

Mr J Maake (ANC) asked if there was any reason why the CEO was not an ex officio member of the Board.

Ms Ramodibe asked about the results of disciplinary investigations. There had been 390 cases heard of which 242 had resulted in convictions. She asked what the offences were.

The Chairperson asked what transformation work was being done at the property council. He was not sure when the new Board had been appointed, and asked why the induction had only been held during the week. He asked if the disciplinary committee had looked at the other cases in which settlements had been made, and to explain the reasons. He asked if there was any provision to supply educational material in the official languages, especially the indigenous languages. This would show a serious commitment to transformation.

Ms Mapetla said that transformation was part of the reason why the Board was pushing education as a tool to fast track PDI’s. They would never achieve their goals otherwise. Only 4% of agents were black, and were often not involved with show houses or negotiating transactions. They were all too often relegated to back room duties. If they were to be mainstreamed, they would have to be in the engine room of the business. There was no body of knowledge, and this had to be created. Certain minima and maxima had to be in place, and practical training was necessary. There were different shapes and forms of estate agencies. There was a lack of a broad framework for ethical conduct. Standards of competency had to be determined.

The CEO said that the Board was working with Cell C on the “Bring a girl child to work” campaign. Girls were encouraged to be attached to the EAAB and be exposed to the running of businesses and regulatory framework. Candidates would be trained as economists and lawyers. The project was aimed at PDIs. They were in discussions with various groups about how new entrants could be mentored in their companies. This aspect was not what it should be.

She said that most agencies were family businesses, and were reluctant to transfer skill to outsiders. There were problems with the transformation scorecard. Companies had been forced to sign the Property Transformation Charter, but had no commitment to it. A “not in my backyard” approach was being followed. There was reluctance to hand over the 26% shareholding which was one of the five pillars of the scorecard. This would take a lot of time to resolve. Government was not a monopoly owner as was the case in some other industries. The black community was the future market, and mindsets had to be changed. Transformation made business sense. The Board would continue to pursue a policy of persuasion and discussion. There were proposals of changes to the legislation which would get property developers and management agents under the ambit of the Board. These two sectors were not currently regulated.

Mr Ashpol said there was not much that the EAAB could do about the question of communal land ownership until that system changed. In some areas there was now individual ownership, but individual titles had only been given in the last two years. Owners could raise finance and sell their land. About half of the communal land in the country had been opened to ownership.

Ms Mapetla said that the Board was working with the IEA. The Board was trying to get the IEA to buy into transformation. Continual discussion was being held. There was an issue of labour relations at the Board following the recent strike. There had been consultations on human resources and there was a commitment to benchmarking. The salary structure had been developed by the new Board. It had been found that staff members were being paid approximately 135% of the market equivalent. There had been no CEO in the previous eighteen months, and levels of discipline were an issue. Some members felt they were entitled to their salary even if they sat at home. The offices were located in a shopping mall, and some staff spent more time in the shops than behind their desks. Access control measures had been taken to combat this. There was only so much money available, and staff members were relatively overpaid as it was. The Board could not afford higher salaries. There was communication with the staff. More focused and qualified people were needed.

She said that there were issues that needed to be unravelled. There was now a strong legal team in place. The forensic audit process was underway. The Committee would be informed about developments. The former vice chairperson of the Board was on trial, and the Commercial Crimes Unit (CCU) was investigating other cases.

The CEO undertook to supply CVs of the Board members to the Committee. It was a strong Board. There were two members of the dti on the Board, namely Mr Naidoo (Chief Financial Officer) and Mr Fungai Sibanda (Acting Deputy Director-General). They were trying to change the ruling that the CEO was not a member of the Board.

Ms Bulo said that information had been received about unregistered agents and abuse of trust funds. These reports were submitted to the claims department and the conduct of agents was being investigated. Allegations of theft from trust funds were referred to the Claims Committee. They preferred to settle issues by mediation. If the case was not serious then the matter could be settled. There would be a disciplinary hearing in more serious cases. Some cases were withdrawn after further investigation while more serious matters were referred to the CCU. If the CCU was unwilling to prosecute then a civil case could be made. The Board was sensitised to the law. There were many criminal cases which had resulted from the Board’s investigations, and some convicted people were serving prison sentences.

Mr D Oliphant (ANC) said there was no clear understanding regarding transformation. Property rights had been denied to the majority for years. He asked if there was any fast tracking to bring up black agents.

The Chairperson said that in its oversight role the Committee would call for public hearings. It would interact with the EAAB.

Mr Labuschagne asked if there was anything to prevent a black person from becoming an estate agent, either legally or due to other reasons.

Ms Mapetla replied that the law allowed anyone to practice as an estate agent, but there were certain economic realities. It was not easy for a person to set up an office or to acquire the necessary knowledge. Education was the answer to these challenges, and the Board had devised a one-year training programme. On the question of companies passing on share options to workers, a lot of persuasion was needed. Perhaps applicants for the next Board should be interviewed by the Committee. A national strategy was needed. The new Board had been appointed in April 2007, but some issues had to be resolved. Therefore their induction had only happened in the previous few days.

She said that she would like to see training material in the different official languages, but this was a different debate. Some of the concepts were difficult to translate. Pamphlets could be printed in the different languages. They were not there yet, and were still developing material. She said that she still had to see what the Property Charter Council had done so far. They were still holding talks about talks. The Council needed to be accountable, and the Committee would be told about achievements.

The Chairperson said that the CEO could be excused for the meantime. The first leg of the way forward was to move towards public hearings. Most of the other things would then be cleared up. The Committee would engage with the CEO and the Board after the public hearings.

Mr Njikelana asked what the value of property stock was, and what the progress was with empowerment.

Ms Mapetla replied that the profile of the Board matched the demographics of the new South Africa. She would send the Committee resumes of the members. A strategic planning session was scheduled for October 2007. Empowerment would form part of this session. As many ideas as possible were needed. Agencies were private companies. The Board needed to persuade them to share their wealth. There had to be a commitment in the industry. The value of property stocks in 2006 was approximately R486 billion.

The Chairperson thanked the EAAB for appearing before the Committee. There was more that needed to be probed, and arrangements would be made for future meetings.
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The meeting was adjourned.