Sectional title versus freehold ownership: what to choose.
Due to some 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, most people don’t understand which kind of ownership to go for; sectional title versus freehold ownership?
sectional title versus freehold ownership: Definitions
However, as current, as it may be, sectional title ownership remains highly misunderstood regarding ownership responsibilities and legalities. To fully understand the differences between a sectional title and traditional freehold property ownership, it is important to define them. “Freehold or full title describes the transfer of full ownership rights when you own property, which includes the building and the land built on it. These kinds of properties include free-standing houses, cluster houses, residential property used for business purposes, and smallholdings. See our article on sectional ownership definitions.
“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 sub-type 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.
“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.”
sectional title versus freehold ownership: Pros and Cons
There are considerable differences with regards to investing in the two type of properties – the following are the pros and cons of both forms of ownership:
The benefits of sectional title ownership
Security: Living in proximity to your neighbors and a more cooperative environment is perceived by many to be more secure than living on a freehold property. In addition 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, owners are entirely responsible for their security – they need to pay to secure their 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 house insurance and 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 their rates and taxes, the unit’s insurance, the contents of their home, their 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 neighbors when compared to freehold neighborhoods.
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 title scheme you will own part of a scheme. This sectional title ownership means 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 the 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 homeowners – there is issue on 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.