Property Practitioners Bill: briefing

Meeting report

Opening remarks
The Chairperson thanked all for attending the meeting at short notice during parliamentary recess and proceeded to speak about the importance of the Bill.  While the Bill is in its developmental stages, having just been introduced, she would like to begin working on it despite many Members being busy during the recess. This is so that the Committee can approve advertising a call for comments from the public and public submissions can begin. By the time the deadline for the submissions is reached, the Committee members will be able to truly make progress in moving this Bill forward.

The Chairperson noted the history leading up to this Bill, such as the court ruling in 2014 which revealed that much of the law pertaining to real estate agents comes from a 1976 Act. A decision was made to create new legislation and that is what is being worked on today. This process is not unique, all pre-1994 Acts have been analyzed to ensure that they are in line with the Constitution. The Property Practitioners Bill was approved by Cabinet and introduced into Parliament and sent to this Committee on 15 June which led to this meeting today. The Chairperson noted apologies from the Minister and Deputy Minister. She asked the Committee Content Advisor to give his assessment of the Bill before the Department presented.

Committee Content Advisor briefing on Property Practitioners Bill
Mr Sabelo Mnguni, Committee Content Advisor, stated that this Bill is necessary for South Africa for two primary reasons: income and social inequality. The economic potential of South Africa is not being met and this is something the Bill had the capability to do. The Property Practitioners Bill was created on 31 March 2017 and its purpose is to repeal the “aging” Estate Agents Affairs Act of 1976. It does this through seven major changes:
• Creating a new definition of a Property Practitioner by expanding the spectrum of the previous one.
• Establishing an Ombudsman, or an office to attend to consumer complaints.
• Extending the powers of inspectors to include searching property.
• Disqualification of a Property Practitioner without possession of proper certification of a fidelity fund and tax clearance certificate.
• Requiring the possession of a BEE certificate.
• Requiring Practitioners to keep documents for at least the last 10 years.
• Enforcing Practitioners to fill out a compulsory disclosure form when buying or selling property.

Property Practitioners Bill: briefing by Department of Human Settlements (DHS)
Mr Neville Chainee, NDHS Deputy Director General for Strategy and Planning, introduced his team and said they would provide a brief overview of the Bill.

Mr Khwezi Ngwenya, NDHS Acting Chief Director of Legal Services, reinforced the statement that the primary purpose of this Bill is to repeal the Estate Agency Affairs Act of 1976 which would provide better control of estate agencies in the interest of the people or consumers. The current outdated legislation is over 40 years old and in dire need of replacement for many reasons. Over the years, the market has resulted in a paradigm shift with new role players who need to be regulated which is why the definition of a Property Practitioner was so long. Also, the Act is not in alignment with the Constitution and other current legislation. This Bill ensures that the legislation is in compliance with corporate governance as well. The main objectives of the Bill were to “transform the property market by ensuring it is a reflection of the South African demographic…, create alignment with the Constitution and other relevant pieces of legislation…, enhance corporate efficiency,” and professionalise the industry.

Mr Ngwenya went through the 11 chapters of the Bill, giving short descriptions for some:
1. Definitions, objects, application and establishment: the Property Practitioner definition was expanded.
4. Establishment of a Property Practitioner Ombud, its powers and duties to real estate consumers.
5. Powers of Inspectors include to lawfully “search premises and seize documents from Property Practitioners where there is non compliance with the Act".
6. Provides for the funds and financial year of the Property Practitioners Regulatory Authority.
11. General matters which include the promotion of property sector transformation, making of regulations, penalties, and delegation of powers by Minister. Clause 69(3)(c) and S69(4) require the Authority to create a transformation fund periodically to promote economic transformation:

(c) introduce measures to be implemented which may include establishment of a transformation fund, incubation and capacity building programmes to redress the imbalances of the past.
(4) The transformation fund envisaged in subsection (3)(c) shall aim to promote economic transformation by facilitating the accessibility of finance for property ownership, property development and investment in order to enable meaningful participation of historically disadvantaged individuals including women and youth.
 
Mr Chainee added that the key points of the Bill are included in the Memorandum on the Objects of the Bill at the end of the Bill on page 40. Among these key points is the statement that the area of land that the Bill regulates has a total property value of R6 trillion. In the past, black participation has constituted only about 4 to 8% of employees and during the period 2013 to 2017, black participation was only 5%. The outdated Act allows and continues this exclusion of people. The Bill also seeks to improve the accountability of the executive authority (Estate Agency Affairs Board renamed as the Property Practitioners Regulatory Authority) more than just through self regulation.

Discussion
The Chairperson explained how critical it is for Members to understand that this Bill has the power to transform the sector. Once installed, it will “level the playing field” so that those wanting to participate in this market, can, and hopefully the demographic of real estate agents will soon reflect the demographic of the country. In addition to the current population of real estate agents being primarily white, they have an average age of 57 years and are male. This Bill should give access to a variety of peoples. "This Bill will migrate the Estate Agency Affairs Board (EAAB) to a Property Practitioners Regulatory Authority". This Bill is going pass the EAAB and opening the market to more than just estate agents.

Mr M Walmarans (ANC) asked for clarity on Chapter 4 on the Property Practitioners Ombud. He said that while this specific Ombud is necessary to protect consumers, an additional Ombud may “agitate the population of Ombuds” already in the sector. He suggested having one Ombud for the entire property sector with branches to represent different entities.

Mr S Malatsi (DA) said the Bill should transform the industry to make it more inclusive of “historically disadvantaged individuals". Barriers created by the previous legislation are why there is an unregulated market and agents in that market are within the demographic that the new Bill is trying to include. Mr Malatsi asked what assurances have been put into the Bill to encourage agents in the unregulated market to become legally certified. They need to feel included to join so that there will be a more representative demographic of real estate agents.

Mr Malatsi’s second point was to ask about the credibility of inspectors. They play a crucial role in the industry and it is important that their judgements are true. He expressed concern that they will not be monitored and will fail to achieve the level of success this Bill is setting out to accomplish. Another aspect was how much power is given to the inspectors to seize documents and more. He asked for clarity because the draft Bill gave inspectors the permission to seize Fidelity Fund Certificate (FFC) without a search warrant and he wanted to know if this was still the case. It is important for the Bill to steer away from possible legal problems.

Ms B Mabe (ANC) referred to Clause 69 on Property Sector Transformation in Chapter 11. She was worried that since the past and present demographics of real estate agents did not reflect the demographic of the country, people would be less receptive to this Bill. Once Members of Parliament go to the public to discuss this Bill, they need to have answers prepared on how this Bill relates to the current question of land redistribution. Due to the prevalent concern about land reform, the public will not have a good perception of real estate agents and may not be willing to lend support. She asked how this Bill is connected to the topic of land expropriation without compensation.

She asked if Chapter 11 does enough for transformation in the sector and if the banks knew about this Bill. If they did know, what were the banks' general views on funding and if they would be also be able to transform.

Mr K Sithole (IFP) stated the definitions were not descriptive enough and asked for clarity. He asked for statistics on the submissions NDHS had received and if there had been any from currently illegal real estate agents. He asked who would benefit from the transformation fund and about potential breaches of the transformation fund. He asked about shack dwellings (backyard dwellings) and if there was any way to help them.

Mr M Bara (DA) said that the Bill is an enabler, opening up accessibility to the entire demographic of the sector. However, this Bill is not an answer to every problem. He asked for a “sense of the transformation fund” and if it will help those trying to build their own agencies. Also, will the transformation fund provide incentives to previously established agencies to hire those who were previously disadvantaged?

He also feared a duplication of ombuds. On the powers given to inspectors, when suspecting foul play, the inspectors can seize whatever they see as evidence. Where does that leave the responsibility of the security officers of those agencies?

Mr Bara asked about the public hearings held by the Department. What was the public’s opinion and concerns and how was these received? The legislation should be able to change the lives it is intended to in the interest of the people.

Ms K Hlonyana (EFF) expressed concern about how estate agents who are currently acting illegally will be encouraged to comply with the regulations. Using the transformation fund, she hoped there would be a way to directly help the estimated 500 unregulated estate agents rather than giving the funds to those who are already established and asking them to employ those previously disadvantaged. Those who are already established may not be willing to include those who were previously disadvantaged. She was content that new role players would be introduced into the market however she thought that there should be specific regulations for the different kinds of role players to suit their differences.

Ms Hlonyana said that the inspectors have been given too much power without enough checks and balances. What control measures have been made to ensure that they do not become “a rogue unit?”

Mr L Khoarai (ANC) stated that the definition of 'property practitioner' is too long and needs clarification. He asked about awareness, especially for those who live in rural areas. How will awareness of the legislation be spread to those far away from the city?

Ms M Nkadimeng (ANC) spoke about the transformation fund which was aimed at economic development. How will this fund be done differently to be successful and help those who are historically disadvantaged? Also, how will that fund be generated?

The Chairperson outlined the process for the advert for public submissions. The advert will be sent out in all 11 languages to include everyone. There will also be many public hearings since this Bill is of such importance. The advert is planned to be put out by the end of the week so the public will have the ability to participate. She reminded Members that the purpose of this meeting is to introduce the Bill to the Committee and help them understand it. The Bill is not in its final form and will continue to be scrutinised.

The Chairperson commented that there have been many questions on the transformation fund in Chapter 11. One of the main goals of this Bill is to transform the sector. However Chapter 11 is a general chapter comprised of general matters such as penalties, regulations, and powers. The Transformation fund should have its own stand alone chapter and not be hidden with other matters which do not reflect the primary goal of the Bill. Having its own chapter would guide people to examine the transformation fund and make a comment on that. She asked for a reason it was done this way and put in the General chapter. She stated that there are other factors pertaining to the transformation fund  which need to be included in the Bill, such as the banks. Nothing should be left out.

Mr Chainee thanked the Committee for its acceptance of the Bill and said that the Bill does have certain aspects that require improvement. The current number of unregulated practitioners is due to the lack of transformation and should there be a fully transformed sector. The agents will be willing to be regulated in the system. The main objective of the Bill is to create a balance between having enough regulation to be functional but not so much regulation, that groups are excluded.

Mr Chainee spoke about the transformation fund’s origins and well as where the funds will be sent. NDHS does not expect those who require inclusion to pay for it; he finds it to be a collective responsibility of the people. The fund finances have been put under the Minister’s executive authority. The Minister will determine how it is used, supplied, and what the priorities of the fund are. He shared the concern that giving previously established estate entities incentives for hiring those who were previously disadvantaged could lead to the funds being abused in a way that does not support transformation.

Mr Chainee replied on the topic of ombuds, saying that should the Committee determine that an alternative solution should be produced, the Department would be willing to come up with a replacement option.

Mr Chainee said that NDHS will produce the statistics on race dynamics so that when Members of Parliament engage the public, they will be able to answer questions.

On the powers of inspectors, Mr Chainee replied that there are checks and balances in Chapter 5 and this has been approved by the state law advisors. Inspectors are required to have a warrant when searching property. No one should have a problem with their books being observed if these have to do with public money.

Mr Ngwenya agreed that the transformation fund should be in its own separate chapter so that it can be emphasized as a key part of the Bill. Included in that chapter can be other issues which fall under transformation. Clause 69 of Chapter 11 is extremely important as it requires the Authority to perform certain actions to help accomplish the desired transformation. A timetable should be incorporated so that it is sure to happen. Understanding that it could be possible for entities to misuse the funds, the Department created the concept also of capacity building programmes that can be placed in the previously established estate entities. Only those who were previously disadvantaged can qualify to use the transformation fund. Although the standards for qualification need to be established to receive money from the transformation fund through the incubation programme, one needs to have a business and a certain level of income.   

On land redistribution, Mr Ngwenya replied that it is important when rural land is being sold to establish the role of the real estate agents, especially if that land was acquired by government. Mr Ngwenya said it is also important to encourage middle class black South Africans to move into higher property value neighborhoods.

Mr Ngwenya replied that by no means should inspectors be able to dictate the law according to their own will. The powers given to the inspectors have been outlined in Chapter 5 and those powers are restrained by law and the Constitution. He agreed that unregulated action by inspectors could quickly become abusive which is why they must have a search warrant in compliance with the Constitution.

Mr Ngwenya agreed that the definition of 'property practitioner' is long. He explained NDHS did this to regulate those who have been abusing the process in the past as well as protect the interests of the consumer. Ways to protect the consumer would be to have intermediaries or other players involved in the process as well as the installation of trust funds to hold the money of the consumer. A trust fund is safer because once the money is put away, it is not as easily accessible and is thus much more difficult to abuse.

Mr Jan Tladi, NDHS Legal Advisor, said that the concern about the inspectors has been adequately covered by his colleagues and requires no further elaboration. Currently, even before this Bill comes into effect, Mr Tladi and the EAAB team have been working on creating an enabling environment in order to help those who were previously disadvantaged by already having to start transformation processes. One of these processes is the Amnesty Programme which is designed to incorporate those agents who are currently unregulated. He is also starting a programme in July to research and understand the reasons for the unregulated market and how to make it appealing for unregulated agents to become certified under the new legislation. He is also working on getting the Minister to pardon those without a trust fund account so that they can still become agents.

Mr Chainee brought up unregulated rental property and provided examples of how unregulated rental properties are not priced fairly and this cannot be beneficial for either the tenant or the landlord. When the transformation process is enacted, it is important that all role players in the property market are attended to.

Something Mr Chainee wants to add to the Bill is a requirement for the state as well as Public Works to use property practitioners. Also, there should be a link between the Property Sector Charter and the Financial Services Charter to reduce banks treating black South Africans with injustice. The norms should be the same for all estate agents, regardless of color.

The Chairperson reiterated how important the legislation was and noted the strong difference between the beginning of the meeting and the end in their understanding the Bill. She questioned like many before her why there was a need for so many Ombuds. Too many Ombuds give the wrong impression and complicate the scene. South African property is a large issue and is estimated at R6 trillion. This spurred the Chairperson to propose having an academy to help those who want to become certified.

She expressed her hope that NDHS will send all of the written submissions it received on the draft Bill to see what people wanted. The Committee is seeking approval from Parliament to send out the advert calling for comments in July. It is important that the people lend their voices and become part of the process. The voice of the people needs to be heard so that the Committee knows that justice is being achieved. She stated that this was the most important Bill the Committee has yet to work on in the Fifth Parliament.

Mr M Shelembe (NFP) was concerned that the Minister was responsible for determining the term of office of the Ombud as the Ombud "may be reappointed for one or more additional terms of five years" by the Minister. That could be a problem because the Committee will not have much control nor understand what guides the Minister.

The Chairperson reminded the Committee that this Bill is not perfect and if need be, they have enough time to completely rewrite the Bill. The Committee will return from recess on 11 August and continue to work on the Bill.

The meeting was adjourned.