On the Rise
With the rising popularity of estate living in South Africa, sectional title property purchases are becoming increasingly popular. In fact, sectional title purchases in South Africa has grown by 5% per year since 2003, according to a recent Lightstone Property report.
Kent Gush, M.D. Kent Gush Properties, says "South African buyers are becoming more accustomed to apartment living and we have definitely seen a trend towards this and away from the traditional free-standing home."
We are not surprised. Firstly, it's easier to source finance for a sectional title property. "New developments give the potential buyer the opportunity to acquire a property with a 100% loan facility from the financial institutions as developers arrange these packages with the financial institutions then they go to market. Very often a potential buyer can afford the monthly bond installment on a property, but doesn't have that 10% deposit, but with 100% financing, entry into the property market is just so much easier as you don't need any deposit or sometimes only a small securing deposit."
Craft Homes marketing manager Jessica Cabanita agrees. "Sectional title homes are usually less expensive and provide less hassle because one typically buys off plan," she explains.
What is Sectional Title
Examples of sectional title schemes are apartments buildings, secure estates and other developments which include shared communal areas and facilities. When you buy into such a complex, you purchase full ownership of a section plus an undivided share of the common property. As owner of a section you automatically become a member of the body corporate of the sectional title scheme, which owns and manages the common property. Monthly levies cover maintenance, security, building insurance and other related costs.
What to consider
"The first thing to do is make sure you understand the obligations of an owner of a property under the Sectional Title Act 95 of 1986, which prescribes management and conduct rules that apply to all sectional title schemes and covers the framework for running such a scheme," advises Jarryd Phillips, Berman Brothers Properties.
Next is to look at the rules established by the body corporate for the scheme.They may vary, but common things to check are whether pets are allowed, is short-term letting - for example AirBnB - permitted,and what restrictions there may be to home alterations or improvements.
Checks to do
According to Rank Real Estate, it's essential to check the financials of the body corporate. Establish which ordinary and special levies are payable in respect of the unit you are considering buying, and find out whether there's a chance that a special levy will have to be called for in the near future. Special levies can be voted in by the trustees to cover additional or unforeseen expenses not included in the monthly levy, such as installation of a new security system or major renovations to common property.
When looking at the financials, make sure the sectional title scheme is solvent: are there excessive outstanding levies which might compromise the upkeep of the property? Look to see if the body corporate runs things themselves or whether a third-party managing agent is responsible for everyday matters. Speak to current residents to see if they're happy with the management of the scheme."
"Sectional title homebuyers should look out for a 'right of extension' clause in their sale agreement," adds Phillips. "It could make a big difference to your property's future value." This clause reserves the right of the developer or body corporate to extend the scheme by adding further buildings at a later date. A right of extension must be registered with exact details of how many further sections will be built, and where, how they will affect existing sections, and also specify a time frame.
Advantages and Disadvantages
Sectional units usually have the advantage over freehold properties of the additional security from the shared systems in place. "We're definitely seeing buyers opt for sectional title units with good security over freehold homes," says Chris Tyson, CEO, Tyson Properties.
There's also the added bonus of having a community of neighbours who look out for each other and the common areas. They may include additional amenities such as swimming pools, gyms, clubhouses or other attractions, and typically are popular with those who enjoy a lock-up-and-go lifestyle. Maintenance costs are shared and generally the initial purchase price is lower than a comparable freehold property.
A possible downside is that you're buying into a community with its own rules, which can restrict your freedom to do whatever you want to your property. Decisions about any major changes are made by vote with the body corporate, so you have to be comfortable with community decision-making processes.
Because a scheme that is badly run will affect the value and saleability of your investment, it is in the interest of owners to play an active role in the body corporate, both to protect their investment and to get the most from the community lifestyle.
Author: Rank Real Estate