BBS clashes with Valuers

SHARE   |   Monday, 20 June 2016   |   By Ditiro Motlhabane
Molefe Molefe

An attempt by Botswana Building Society (BBS) – the country's biggest mortgage lender – to bully property valuers into accepting illegal valuation fees it wants to impose has triggered a bruising battle between the parties, which could soon end up in court. Last week, desperate efforts by Real Estate Advisory Council (REAC) and Real Estate Institute of Botswana (REIB) to mediate in the standoff failed when BBS management remained resolute that the valuers "either take it or leave it". The matter has been escalated to BBS Managing Director Pius Molefe. BBS hardline stance on the fees, the valuers complain secretly, is a clear indication that those who refuse to tow the line will be terminated from the lucrative contract involving thousands of properties under the BBS portfolio in different parts of the country.

At the centre of the dispute is an instruction from BBS Acting Credit Risk & Underwriting Manager Oarabile Basupi to a group of valuers appointed for the financial year 2016/17 to perform valuation of properties allocated to their companies. In an e-mail correspondence copied to different valuers in April, Basupi wrote: "Note that the valuation fees for properties in Gaborone is P1 000.00 plus VAT and P2 000.00 plus VAT for outside properties". It has since emerged that as far back as the year 2010 BBS was paying only P825.00 as valuation fee for all their properties in Gaborone, despite an existing Act and Guidelines governing the conduct of property valuers which came into effect in 2003. The 2016/17 panel of property valuers contracted to BBS have rejected the unlawful fees, arguing that they contravene the law governing their profession and are calculated to deny government the much needed revenue in the form of Value Added Tax (VAT), currently at 12 %.

VAT effect

All fees charged by registered property valuers (members of REIB) are expected to be within the guidelines of the Real Estate Act 2003, for purposes of regulation and to enable government to collect tax due to the state. One property valuer said: "The total effect of BBS instruction is to circumvent and rob government of VAT, which companies collect on behalf of the state and remit to Botswana Unified Revenue Service (BURS). Setting a fixed valuation fee at P1 000.00 for all properties means that even a commercial or industrial property valued over P5 million, which under normal circumstances would fetch a valuation fee of over P10 000.00 loses in excess of P9 000.00

. In turn 12 % VAT paid on the P1 000.00 BBS fee is a measly P90.00, when the correct tax to pay should be P1 074.00 for a property valued at P5 million. BURS must investigate BBS conduct". On May 03, REIB wrote a letter supporting the decision of their members. REIB Secretary General Marilyn Mosha warned their members of non-compliance with the Act and instructed them not to accept the instruction from BBS "unless the final agreed fee is within the confinement of the scale as stated in the Act". She cautioned that anything outside of that (provisions of the Act) amounts to non-compliance of which the REAC will have a prerogative to take action against the valuer.

Suspension of valuations

BBS temporarily suspended the 2016/17 valuation project on May 10 "until the matter has been resolved" after REIB brought to the attention of the Society its contravention of the law as a result of the "fee structure" used in the BBS Collateral Management Exercise. Subsequent meetings to resolve the issue ended in a deadlock, with BBS refusing to budge, and Basupi informed the valuers to resume the 2016/17 valuation exercise under the same terms and conditions. Even more disturbing, the valuers said, is that the instruction violates the very Service Level Agreement (SLA) they have entered into with BBS. Under Article 4.1.1 and 4.1.2 on Fees and Costs Payable by the Society the SLA reads: "The Society will pay a reasonable rate/ fee for the valuations, which shall be the prevailing market rates. Where the level of complexity warrants it and where multiple valuations are requested in the same complex or township, the parties will re-negotiate the fees and costs per individual instruction to value".

In the same SLA valuers are expected to pay for all travelling expenses when operating within a 40km radius of the valuer's office. Valuers are further expected to pay costs for area maps, sectional title plans, measuring instruments, computer hardware and all other incidentals required in order to carry out a valuation, including equipment referred to above. The valuers argue that neither is the P1 000.00 or P2 000.00 imposed on them by BBS anywhere near current market rates nor have they been consulted to re-negotiate the fees and costs per individual instruction to value prior to setting the figure. One of the valuers, who declined to be named for fear of victimisation, told The Patriot on Sunday that their biggest fear is that if they accept to be 'raped' like this they would be setting a bad precedent. "This has gone on for too long and has to be corrected. We have to comply with the law as set out in the Real Estate Professionals Act 2009. Other financial institutions (with mortgage facilities) and different clients could take a cue from the conduct of BBS and start dictating valuation fees to us, which is illegal," she cautioned. The table below provides a guide of valuation fees chargeable in accordance with the Scale Fees as established by the Real Estate Institute of Botswana (REIB).

BBS responds

In response to a set of questions about the dispute, Sipho Showa – BBS Board Secretary and Head of Marketing and Communications – said BBS and REAC interact regularly on matters of mutual interest and have had discussions on the fees paid to Property Valuers engaged by the BBS from time to time. "Therefore, both parties have since come to an agreement on rates to be charged by members of REAC engaged by BBS," he said.

BBS background

BBS was established in 1976 under the Building Society’s Act, with a vision to be the premier provider of property finance and attractive investment returns in Botswana. It is one of the few indigenous institutions that provide property finance in Botswana. The Society offers ordinary loans, building loans, commercial loans, industrial loans and equity/ further advance. The Society offers a range of Mortgage Loans at interest rates of 10.8% for the variable rate mortgage and 11.35% for the floating rate mortgage. The maximum repayment period for individual borrowers is 15 years on the Variable Mortgage Bond and 30 years on the Floating Rate Mortgage.

Upon establishment, BBS assets consisted of government stock of P200 000, advances of P2 505 000 and cash and investments amounting to P1 264 800. The advances comprised 488 mortgages taken over from the United Building Society of SA. The Society grew significantly and its reserves increased from only P2, 100 in March 1977 to just under P14 289 000 in March 2012. It currently has nine branches across Botswana. BBS has just completed a successful massive tour to consult shareholders throughout the country about an ambitious plan to apply for a commercial banking license, to expand operations.