Sectional title versus freehold ownership
Due to a number of reasons, including heightened security, affordability and a more communal way of life, sectional title living has been growing in popularity over the last decade or so. However, as popular as it may be, sectional title ownership remains highly misunderstood in terms of ownership responsibilities and legalities, explains Adrian Goslett, CEO of RE/MAX of Southern Africa. To fully understand the differences between sectional title and traditional freehold property ownership, it is important to define them. Says Goslett: "Freehold or full title describes the transfer of full ownership rights when you own a property, which includes the building and the land it is built on. These kinds of properties include free-standing houses, cluster houses, residential property used for business purposes, and smallholdings. "Sectional title on the other hand, describes separate ownership of units or sections within a complex or development. When you buy into a sectional title complex, you purchase a section or sections and an undivided share of the common property. These are collectively known as units. Sectional title dwellings comprise mini subtype houses, semi-detached houses, townhouses, flats or apartments, and duet houses." Sectional title developments are governed by a Body Corporate, which is the collective name given to all the owners of units within any particular complex. Goslett elaborates: "The Body Corporate is responsible for managing the scheme and taking care of its finances. A managing agent is often appointed to take care of the duties of a Body Corporate, which includes collecting monthly levies, paying the scheme's insurance premiums, arranging meetings, ensuring compliance with the Sectional Titles Act, and ensuring that the owners and tenants comply with the Body Corporate rules." There are considerable differences with regards to investing in the two type of properties says Goslett - he offers the pros and cons to both forms of ownership: The benefits of sectional title ownership Security: Living in close proximity to your neighbours and in a more communal environment is perceived by many to be more secure than living on a freehold property. Added to this, most sectional title developments have excellent security around the perimeter and at the entrance of the development, which is all included in the monthly levies. With regards to freehold properties on the other hand, owners are entirely responsible for their own security - they need to pay to secure their own perimeter, and often for an armed response security company to patrol their area. A fixed monthly cost: Unlike freehold properties, where the owners have to pay for their own home insurance and for the upkeep of the pavement, garden and exterior of their homes, owners of sectional title units pay a monthly levy instead. The levy includes the following costs - insurance premiums, maintenance of the common property, wages and salaries of cleaners, security and other staff involved in maintaining the common property, as well as any water and electricity required for the common property. As a result, owners of sectional title units only need to pay for their rates and taxes, the unit's insurance, the contents of their home, their own private gardens and for their monthly electricity and water consumption. 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 costs. Affordability and communal living: Generally speaking, a sectional title unit within a complex is more affordable than a freehold house. Also, on average, communities living in sectional title schemes boast close-knit communities and far greater interaction with their neighbours when compared to freehold neighbourhoods. The benefits of freehold ownership Independence: Unlike full title ownership, where the owner is in complete control and is financially responsible for the property in its entirety, when you invest in a sectional tile scheme you will own part of a scheme, meaning that the owner has invested in and is part of a small community. As a result, they will need to comply with the management rules and conduct rules as laid out by th e Body Corporate. Majority rules: The rules and regulations of any particular complex may change and, unlike freehold property owners, sectional title investor or owners may not be happy with the changes, but won't have the power to change them in an individual capacity. Simplicity: The legalities of sectional title ownership elude a great portion of home owners - there are issue pertaining to participation quotas, nominated values, exclusive areas and quorums. Lack of freedom: Owners of sectional title units do not have the freedom to make improvements to their property. Those who want to renovate, need to get approval from the Body Corporate before they can begin building. Liable for the debt of the Body Corporate: If you are investing in a sectional title scheme, you will be liable for the debt of the Body Corporate. As such, it is important to deduce if the scheme is being well managed and that the financial statements of the Body Corporate are all in order. Interestingly enough, Goslett says that the sectional title trend may be wavering: "According to the latest house price index (recorded until March 2010) by property research group, Lightstone, freehold properties have outperformed their sectional title counterparts over the last year. It notes that freehold property inflation was 7,9% for January 2010, 9,0% for February and 10% for March, whereas sectional title properties have shown a decline from a flat 7,1% in January and February, to 6,8% in March."
Author: Adrian Goslett