The Difference Between Freehold Property and Sectional Title
Consumers today are faced with numerous choices every day, from what brand of clothing to buy to what car you would like to drive. The property market has plenty of choices of its own, so if you are somebody looking to buy a house, it would be best to know the difference between freehold property and other types of residential properties. One property is not better than the other, but each buyer has specific needs such as:
- Needing to be close to their work or schools
- What you can afford
- Security reasons
There are two main types of residential properties in South Africa. Let’s have a look at the options as well as the advantages and disadvantages of each. It is important to note that some homes built within gated communities can either be freehold or sectional title.
For many years Freehold Property has been the most popular option for home owners. You buy a house and you are responsible for everything including maintenance, security, taxes, insurance, electricity and the water bill. Freehold also known as Full title ownership means the owner has full ownership rights, this includes the house or building structure as well as the land it is built on. Freehold property can be in cases of free-standing houses, residential properties that are being used for business as well as small holdings and cluster homes.
This property will be registered at the Deeds Office and has its own erf number. The one advantage that stands out the most for a freehold property, is the owner can make any alterations they want without having to get permission as long as it complies with the municipal regulations. You can paint the house any colour you want, you can make changes to the interior as well as exterior. You can create a unique living area that is best suited to you and your family’s needs. Any upkeep of the garden, fencing, driveway and everything on the property must be taken care of by the owner. This could also be a disadvantage, as your neighbours also have the same privileges. This means you could have problems selling your home if the property next door looks shabby and run down because the owners have not maintained anything.
Cluster homes can be part of a secure and gated community or Estate, but still fall under the freehold property option. These are becoming a popular choice as it offers better security than a free-standing house. In this case there is also a home owner’s association involved, which then runs the shared concerns of the Estate. This association is formed by certain elected trustees. This involves paying a levy and you may also have to get permission to make any changes to the property, as the Estate may like to keep the same overall appearance. There might also be other body governing rules that all residents must adhere by.
Further benefits of a Freehold Property:
- Freehold houses can usually be found on larger properties, which gives the owners more space and privacy.
- Independence, the majority rules within a sectional title property and if the you don’t like the changes made there’s not much you can do. All decisions are made by the owner of a freehold property.
Some Disadvantages of Freehold property
Deciding on this option, all the major costs will fall onto your shoulders alone. This may have the effect, that some of these costs cause you to exceed the budget you set for monthly expenses. If this is the case, it may force you to look for another house in a lower price bracket, thereby losing the house of your dreams. This situation could involve a swimming pool or tennis court that forms part of the property you fell in love with. Whereas, if the home was part of a sectional title deed then the cost of a swimming pool and/or tennis court is shared by all the owners, making it possible to afford the home of your dreams.
Another disadvantage with freehold property is, the security of your home also lands squarely on your shoulders alone. This could work out to be very expensive, and due to the cost, may result in you installing an inferior security system. Again, this is an advantage for sectional title homes, as the security costs are shared by all and it allows each owner to install a more comprehensive and advanced system.
In the freehold property you are responsible for all the administrative and financial aspects of the property. Whereas the sectional title home owner has the assistance of professional advisors and managing agents.
Many of the developments including townhouses, apartments, duplex and simplex developments all fall under the sectional title umbrella. When you buy sectional title, you are purchasing a separate section within a larger development. So, you own your ‘unit’, but you also form part of the larger development. These units can come in the form of townhouses, semi-detached houses, apartments and flats. When buying a sectional title home, you will then find yourself belonging to a body corporate. This is made up of all the owners within the complex who then elect trustees, who all volunteer for this position. All those on the body corporate oversee what goes on within the complex and its finances. The finances can be given out to a professional third party to manage.
Further responsibilities of the body corporate:
- Arranging meetings to discuss grievances, changes to made and to deal with any other issues that arise.
- To make sure that the insurance premiums are paid
- These members should ensure compliance with the Sectional Title Act
- Making sure everybody, all residents follow the rules set out for the complex
Sectional title homes have become very popular over the years as there are many benefits to living within a complex. Depending on the development, you could have access to an open garden area, swimming pool or even tennis courts. Since the upkeep and maintenance of the complex is done as a community and costs are shared. This can provide residents with a higher standard of living that is more affordable. One of the major features of sectional title as well as cluster homes, is security.
The whole purpose of many of these sectional title homes, is that it can easily fit into a busy lifestyle. The option allows for a convenient ‘lock and go’ type of lifestyle. This type of lifestyle also has more of a community feel, many times the body corporate organize events that residents can attend. Some also offer things like their own clubhouses and other amenities.
Unfortunately, many sectional title developments have many rules that must be followed, which sometimes includes no pets or allowing only certain types of pets. Although the units are low maintenance, you can’t make any personal changes to them. Also, if you are investing in a sectional title property, then you may land up being held responsible for any debts the body corporate might have, due to mismanagement of the funds.
This is partly why the sectional title act is there, one of the requirements includes the body corporate having a reserve fund. This fund helps to cover any future maintenance that may need to be covered.
The Sectional Title Act
Certain parts of the old Sectional Title Act 95 of 1986 are still valid, but there have been two new provisions added. Firstly, the Sectional Title Schemes Management Act (STSMA) and secondly the Community Services Ombuds Service Act (CSOSA). The role of the STSMA will apply to the management of body corporate schemes while the CSOSA is responsible for the management of complexes managed by a Home Owners Association as well as retirement villages.
The normal home owner or buyer is not concerned with or able to understand all the details that are contained in these documents. However, if you are found to be a home owner in a body corporate or home owners’ scheme, then it is important to understand some of the basic issues addressed in these documents. Some of these important changes to the acts are listed below and came into effect in October 2016.
- The management of the sectional title scheme needs to create a reserve fund, which needs to be 25% of the annual levy figure. The purpose of this fund is to be able to cover maintenance and repair costs to the property so as not to burden home owners with sudden extra costs.
- Where trustees of a scheme are having trouble recovering arrear funds from home owners, then the ombud will offer their assistance in the matter.
- Increase in levies cannot be done whenever the management feels the need but must be certified in writing to the ombud.
- Any changes to the rules must be done in writing and be approved by the ombud before it can be published and come into effect.
- This service offered by the ombud will be funded from the schemes levy payments and to keep it reasonable, it will be proportionate to the amount of levy that is paid annually.
Whatever your choice is for your new home be it Freehold Property of Sectional Title, the bottom line is not to rush in and buy the first house you see. Take your time explore your options and do your research. Afterall this is the largest investment your likely to make and the decision should be a wise one.