Sectional title vs. freehold – consider the differences before investing

Sectional title living can offer heightened security, affordability, and a communal way of life. However, sectional title ownership comes with a variety of responsibilities and legalities of which property buyers are not always aware.

Adrian Goslett, Regional Director and CEO of RE/MAX of
Southern Africa says there are considerable differences with regards to
investing in sectional title and freehold (or full title).

When purchasing freehold or full title, the buyer gains
full ownership rights of the property, including the building and the land it
is built on. When you purchase a sectional title, a buyer only gains ownership
of a unit or section within a complex or development along with an undivided
share of the common property
” he says.

When owners have full control over their decisions when
purchasing a full title property, owners within sectional title developments
are governed by a Body Corporate who are responsible for managing the scheme,
setting and enforcing complex rules, and taking care of finances

Unlike freehold properties where the owners pay for the
upkeep of the pavement, garden and exterior of their home, sectional title unit
owners pay a monthly levy instead. This levy includes maintenance of the common
property wages of those maintaining the common property and, any water and
electricity required for the common property. The cost of maintaining pools,
tennis courts, communal park areas and clubhouses in the development is shared
which contrasts with freehold property, where the owner is responsible for all

This is where some buyers might prefer the independence
of owning a freehold title. Unlike full title ownership, where the owner is in
complete control and is financially responsible for the property in its entirety,
investors in a sectional title scheme will own part of a scheme, meaning that
the owner is part of a small community and will need to comply with the
management rules and conduct rules as laid out by the Body Corporate. The rules
and regulations of any particular complex may change, and, unlike freehold
property owners, sectional title investors or owners may not be happy with the
changes, but won’t have the power to change them in an individual capacity
Goslett cautions.

Owners of sectional title units do not have the freedom to
make improvements to their properties. Those who wish to renovate, need to get
approval from the Body Corporate before they can begin building.

Those investing in a sectional title scheme will also be
liable for the debt of the Body Corporate. As such, it is important to deduce
if the scheme is being managed correctly and that the financial statements of
the Body Corporate are in order
,” he advises.

From an affordability perspective, sectional titles often
offer good value for money yet, the return on investment is often slightly
lower than one might expect on a full title property. According to the RE/MAX
National Housing Report Q2 2020, sectional titles continue to be the worst
affected by the lockdown. Reflecting a significant decline, the national median
price of sectional titles dropped by 8% to R953,084 from the R1,032,045
reported in Q2 2019. Freehold homes, on the other hand, reflected a national
median price of R1,109,852 which is a 3% decrease on the median asking price
for Q2 2019 (R1,148,167).

Deciding whether to purchase a full title stand or
sectional title property is entirely dependent upon a buyer’s unique
requirements and needs. Those who are uncertain which form of ownership would
better suit their needs should get in touch with one of our local RE/MAX real
estate professionals who will gladly provide some free advice around the topic
Goslett concludes.   

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