Sectional title vs freehold property

Sectional title, freehold or cluster home; what is the best kind of residential property to buy?

Luthuli says a well-chosen residential property of any type remains a sound investment.

According to Trish Luthuli, new business executive at Pam Golding Properties Gauteng, it all depends on what you are looking for in a home.

“It is important to have some understanding of these different types of properties before you consider buying a home. One kind of property ownership is not necessarily better than another; your choice of home depends upon your needs, where you are in your life and what you can afford.”

Luthuli says a well-chosen residential property of any type remains a sound investment. After a slight setback in 2011, the recovery in house prices in South Africa has steadily gained momentum year-on-year.

Despite a sluggish economic growth rate and two modest interest rate hikes during the course of 2014, the Pam Golding Properties Residential House Price Index, which was launched late last year, registered a healthy average annual growth rate of 6.6% in 2014.

This is a notable improvement on the average annual increases of 5.1% and 3.5% recorded in 2013 and 2012 respectively.

Luthuli says there are effectively only two forms of residential property ownership in South Africa: freehold and sectional title. Townhouses, simplex or duplex developments, and apartments are usually owned under a sectional title arrangement. Homes within gated communities may be held under either freehold or sectional title forms of property ownership.

“Freehold is a more traditional form of residential property ownership in which the owner is responsible for all the bills and maintenance of the property, including taxes, insurance, upkeep, security, electricity and water bills.”

Freestanding homes in residential areas are usually held in a freehold form of ownership, as are many properties in gated estates, she says.

The concept of a ‘cluster home’ is often not well understood. In South Africa, and Johannesburg in particular, a cluster complex is essentially a group of freehold properties that are enclosed by a boundary wall.

Luthuli says there is a wealth of different types of homes available in Gauteng, and there is something for everyone. However, home seekers should ensure that they understand their obligations as owners prior to buying any property.

However, while cluster homes are usually held in freehold, it is important to note that they do represent a somewhat unique form of property ownership, says Luthuli.

She says cluster developments are usually governed by a homeowners’ association with a constitution that is drawn up by elected trustees. Buyers are obliged to become part of the association, pay a levy for security and the maintenance of common areas and facilities, as well as subscribe to the governing body’s rules.

These rules cover operational management issues and may include architectural guidelines, says Luthuli.

“In other words, while a cluster home is owned in a freehold arrangement, the owner may have strong obligations to his or her community. When you buy a sectional title property you are buying exclusive ownership of the unit or section that you have purchased, while at the same time becoming a joint owner of the common property of the development.”

The administration and maintenance of the common property is the responsibility of a body corporate, which consists of all the owners of the townhouse complex or apartment block, who then elect trustees to handle its day-to-day management, she says.

“Depending on the type of property purchased, you may also be entitled to the exclusive use of a garden, parking space, storage facility and staff quarters.”

Jason Shaw, manager of the Pam Golding Properties Fourways office, says the fact that residents of sectional title communities together contribute to the upkeep of the complex or block, as well as the maintenance of facilities, means that many sectional title developments are able to offer a relatively high standard of living.

“The ability to share costs such as security, maintenance, water, insurance, and garden services tends to keep the cost of living more affordable. This is one of the reasons why sectional title properties remain a popular option within Gauteng.”

He says security remains an important concern for buyers around Johannesburg. Both sectional title and cluster developments make security more affordable, allowing access control, perimeter electric fences and other measures to be put in place.

“Living in a secure complex enables a highly convenient lock-up and go lifestyle that many people appreciate,” says Shaw.

In many cases residents of complexes, estates and apartment developments also value the community living these residences afford, as well as excellent amenities that may be on offer such as clubhouses, restaurants, swimming pools, tennis courts and other facilities.

However, Shaw says sectional title arrangements are not for everyone. “There are property owners who feel that freehold ownership allows them to exercise greater control over the decisions they make about their homes.”

Freehold owners can, for example, make alterations to their property without having to obtain the prior approval of a body corporate or abide by its rules, although it should always be kept in mind that any plans for major modifications to freehold property do have to be approved by local authorities.

Body corporate rules may also in some instances prohibit owners from keeping certain types of pets, which may not suit some people. Some homeowners’ associations in cluster developments may also place restrictions on certain kind of pets.

Shaw says freehold properties may offer other advantages for the family. “For instance, they are often set on larger properties than sectional title homes and provide the homeowner with greater privacy, but this does of course depend on the individual property.

Luthuli says there is a wealth of different types of homes available in Gauteng, and there is something for everyone. However, home seekers should ensure that they understand their obligations as owners prior to buying any property.

An experienced agent who understands the market and who has your best interests at heart will be able to assist, she says.