Level of difficulty
2/5. Will need desire to learn more about CRE
Why this post?
You want to create a property in Gmaven. Do you store it as a property, or unit? What, if any, are the risks of creating data debt for yourself?
Not correctly handled, there are indeed risks.
- Where various properties have been merged into one – the negative effects we have encountered:
- When trying to sell the asset, you will need to separate these properties, plus their leases and attributes out into separate entities, and assign the correct owners to them
- When parties are looking to buy properties, these properties (while separately saleable) do not have unique owners, prices or attributes – so again, you will need to split and assign the data correctly
- Inaccurate search results (due to unique property data being merged, or the data on unique properties being ignored)
- Inaccurate data – being information has either been merged or simply gone missing
- Where buildings have been split out into properties – bad outcomes that have plagued us:
- Duplication of title deed (purchase price, ownership, erf extent) and debt funding information. This results in double-counting of data
- Data debt incurred for the work required to merge separate properties into one. This busy work, agitated generally by sales transactions, can extend to deduplicating tenants and owners
- Inaccurate search results (due to properties being duplicated, or values being divided across properties)
Definition of a property
A property is simply defined as real estate which can be sold by the owner to a buyer. (This real estate can be land, land and improvements, or improvements)
Handling for property by data permutation
What about land comprising various buildings?
If those various buildings are located on one erf or plot (or consolidated erven or plots), and are only sale-able as one, this is a property. The property name would be an umbrella term for the individual buildings.
If those various buildings are located on separated erven, and those erven can be sold separately (i.e. the properties don’t straddle the erven), then you look at the owners of such buildings. If:
- The owners are unique, then the properties can be sold separately (as per the original definition). Such buildings, provided they are can be sold separately, can be handled as properties.
- The owners are all the same (please see this on CRE ownership), then it’s open to interpretation. Generally it makes sense to follow the lead of the property owner
- Where a property owner has handled all separate buildings as one park or property – follow suit.
- Where a property owner handles each separate property as a property – follow suit
Treating sectional title or strata or commonhold or condominiums as a property, or not?
Where a park / building is comprised of sectional title or its geography-specific synonyms, there are two cases to consider. Where:
- These units are owned by separate owners, such sectional title units are deemed to be properties too. Why? They satisfy the definition of a property
- These units are owned by the same owner, as above, it’s open to interpretation. Again, it makes sense to follow the lead of the property owner
Recommended naming convention to avoid risk of duplicates: Property name_Unit N. For example, Pelican Park_Unit 4.
What about a property in process of being sectionalised / split into strata / condos / commonhold?
Until the units have been sold, all units are still held by one owner. Where one owner, they satisfy the definition of a property unpacked above, and can be treated such. For the interests of convenience, we recommend treating all theoretical-at-this-stage-properties as one property.
For more information, specifically relevant to this, please see the detail on marketed space permutations.
This approach is convenient. Treat units, which could be sold or leased-and-never-sold, as units. Once units are confirmed as sold to a separate owner, then perform the work of deleting the unit, and creating a separate, stand-alone property. (Because then it satisfies the criteria of a property).
What about development schemes on a piece of land?
Again, while the properties are theoretical constructs (i.e. not yet developed out), our recommendation is to treat the development schemes as units, living inside a property.
This approach sidesteps complexity in the management of property data, and reconciliations of values. (For example, the site has 200K sqm of developable bulk. There are schemes for developments of 10K sqm, 20K sqm, 30K sqm, 50K sqm, 100K sqm and 200K sqm – some buildings may be in the process of construction, others available at a future date. Added together, this theoretical development of 410K sqm would not reconcile to the 200K maximum. Again, because no properties have been created, the complexity is elegantly averted.)
What about land parcels?
Again, while the properties are theoretical constructs (subject to sub-division, consolidation, or sale as is), our recommendation is to treat these land parcels as units. On sale, create the property – provided it satisfies the definition of a property.