PROPERTY OWNERSHIP: Apartments VS Houses
Category Property Investment
SECTIONAL TITLE vs FREEHOLD
One of the great decisions when purchasing property in South Africa, whether as a first time buyer, buying to live, or a seasoned investor, buying to rent out, is weighing up the pros and cons of sectional title properties (apartments), versus freehold properties (houses). Both types of properties have their advantages and disadvantages for property owners, which need to be carefully considered before choosing which suits them best. So, here are some of the key things to consider for both sectional title and freehold property.
Sectional Title Apartments
Sectional Title property in South Africa came into being in 1973, following the 1971 Sectional Titles Act. It essentially enabled South Africans to buy a 'section' within a building, usually an apartment complex, that had multiple 'properties' within it. When buying a sectional title property you are purchasing everything within the four walls of the apartment itself. Everything outside the front door of the apartment, including hallways, stairwells, foyers and outside space are classed as common property of the Body Corporate, which is the name given to the collective of all owners in the complex. When buying a sectional tile property you automatically become a 'member' of the Body Corporate upon legal ownership, and will pay levies, calculated proportionately on the m2 of your unit, into the shared finances of the Body Corporate. The Body Corporate, ie. All owners, appoints Trustees from its membership to oversee the running of it's affairs in the interests of all owners. The Trustees have certain decision making powers, and appoint a Managing Agent to attend to the practical running of the complex, its finances and collection of levies.
Advantages
Sectional Title property is often more affordable than freehold property in many areas and allows many to make their first step on the property ladder. It is generally a lower maintenance option, as you only need to personally look after the inside aspects of the apartment you own. Maintenance and cleaning of communal areas, security, external window repairs, building insurance, water supplies and so forth are all looked after by the managing agents on behalf of the Body Corporate. It is much easier to treat the property as 'lock up and go'. Many residential complexes have a community feel to them, particularly in the era of whatsapp groups and online portals that many Body Corporates create. Many apartment complexes have facilities like pools, braai areas and in house gyms, which you have the benefit of using, without the worry of personally maintaining.
Disadvantages
There are, of course, some disadvantages to owning a sectional title property, in the eyes of some. You are automatically part of a Body Corporate, which reflects the number of owners in the complex, which can be up to several hundred individuals in larger complexes. Inevitably, the more people involved in decision making the more difficult it can be to reach a consensus easily, even with trustees. Should you wish to carry out any significant renovation within your apartment, or have external contractors working in your apartment, you will need to request the permission of the Trustees, and adhere to the Body Corporate rules that govern the conduct of all owners in the building. Some Body Corporates have rules that prohibit the keeping of pets, or at least stipulate that a written request must be made to the Trustees for specific permission to be granted. Sectional title properties have levies as well as rates, so monthly costs can seem higher for owners. There is also a compulsory reserve fund that Body Corporates are obliged to raise through levies.
Freehold Property
Freehold property is defined as any estate which is "free from hold" of any entity besides the owner. Essentially, it means that the property in its entirety belongs to the owner that has purchased it, and is legally defined as such in the Title Deed of the property and the Deeds Office. It will be defined by an erf number, along with a physical street address, it's physical extent, boundaries, and zoning rights. Freehold property, either land or a house, or both combined, tends to be more expensive to buy than sectional title in most areas. However, once purchased, it is all yours, as the legal owner.
Advantages
You are the outright owner of the property (albeit, often with a mortgage bond over it). So, owners of free hold properties, usually houses, have more freedom to do what they wish with the property, subject of course to municipal by laws and zoning restrictions. You can decorate, renovate, extend, reconfigure and generally style your property as you wish, with the above caveat of municipal regulations. You don't need to involve others. If you want to create a swimming pool in one corner of the garden, or build a braai at the rear of the property, or paint your front door bright pink, you can generally do so, without too much hassle. The zoning of the property may allow you to add to the house, by increasing its size outwards or upwards, subject to planning being approved. In short, you often have the potential to add more value to the property, with the only constraint being your financial budget. You have a great degree of freedom and control over your piece of 'real estate'. You may often find that there is a local ratepayers forum and community /neighbourhood associations that you can be part of. You generally have more space, and distance from your neighbours than you would do in an apartment block. So, you can make your own rules, including the keeping of pets on the property.
Disadvantages
As the owner of a freehold property you are entirely responsible for everything relating to the property, without the buffer of a Body Corporate and managing agents. It means that you deal directly with the municipality in relation to all services, such as water and electricity supply, including any problems arising from those. You also are responsible for your own security of the property, and are usually not going to employ a full-time security firm or guard to look after your property 24/7, relying instead on area security firms that are contracted with residents collectively, or direct armed response. Upkeep of houses and gardens can be costly, and ideally need to be budgeted for, with a reserve for unexpected maintenance issues. You will also need to budget for buildings insurance, as well as contents insurance. So, there can be more unexpected costs that you are fully responsible for.
What to choose?
As you can see, there is a great deal to consider, when choosing between sectional title and freehold property. There are clearly advantages and disadvantages to both, depending on what is important to you. The main thing is to approach your property purchase by empowering yourself with as much relevant information as possible. If in doubt, ask pertinent questions of the agent representing the seller. A good agent will be able to provide comprehensive answers to questions about body corporate rules of a sectional title scheme, or zoning rights of a freehold property. The Kinesis Property team have over fifty years combined experience of selling both freehold and sectional title property, so are always available to provide sound advice to both buyers and sellers on all aspects of a property
Author: Richard Boxford
