In the last few years there has been an obvious trend towards investors and homeowners alike buying far more properties in sectional title schemes. The reasons for this trend are as varied as the investors themselves. However, as popular as this property type may be it is also one of the least understood in terms of ownership responsibilities, legalities and many other issues involving sectional titles. We will therefore in the coming weeks feature a series of articles explaining sectional titles and giving an overview of what it means to be a sectional title owner.

As an investment, a sectional title unit is as good as any other property investment as long as the numbers make investment sense and returns are according to investor expectations. However, when purchasing a sectional title unit the property investor needs to be aware of many legal factors and issues surrounding such properties before making the ownership decision.

This first article deals with the basic issues as well as the pros and cons of owning a sectional title. At the beginning we need to understand that in sectional title properties, the investor owns a part of the scheme, meaning that the owner in a sectional title scheme is also part of a small community. Therefore, the considerations of sectional title ownership are quite the opposite of freehold properties where the owner is in complete control. Hence, it stands to reason that property investors need to carefully consider whether they want to join such a scheme or community and what this means in terms of their investment.

There are many reasons why sectional titles have become a preferred way of living and investing in property. These may including crime, a disdain for long commutes and property pricing. However, many owners, much like estate agents and tenants, continue to be mystified by the legislation of sectional titles and rules that intimately affect their daily lives.

There are as many drawbacks to sectional title properties as there are benefits, depending on your needs as an investor:

Benefits of a sectional title

• The advantage mentioned by most people is the security that sectional titles provide. Living in a closer space with more people around is perceived to be more secure than living on one’s own freehold property. Adding to this perception are security facilities at the entrance of complexes and buildings as well as high walls. For investors, secure sectional units are attractive as prospective tenants also look for security.

• Sectional title environments relieve the investor from management of the communal areas. Usually an investor would have to maintain a house and its garden at his or her cost, while in sectional title properties everything outside the section is maintained by an appointed managing agent and the owners pay for this service with their monthly levies.

• There is a growing trend of people preferring close-knit communities and greater interaction with their neighbours.

• Pools, tennis courts or other amenities are maintained by the Body Corporate and the cost is shared. This contrasts with freehold property where the owner is responsible for all costs. There are no ugly surprises as the budget for maintenance is a fixed monthly expense in the form of a levy.

• Sectional titles are cheaper. A unit in a complex may cost less than a freehold house. Though dependent on area, this generally holds true. An example would be a sectional unit in an upmarket area may sell at around R800 000 while freehold houses in the same area may sell for R1.5-million.

Drawbacks of sectional title properties

• It’s often hard to understand the legalities of sectional titles. There are issues pertaining to participation quotas, nominated values, exclusive use areas and quorums. Owners and tenants frequently don’t fully understand these issues and how they are affected.

• Owners also struggle with the understanding of their responsibility regarding the body corporate, their own sections, management rules, conduct rules and common property.

• Sectional title rules may change and they are not under the control of the sectional owner or investor, which in a freehold property is quite the opposite. Both investors and tenants may not be happy with changes made at all times but they don’t individually have the power to reverse changes or make changes that are suited to them.

• Investors often find it hard to be involved in meetings and decision-making in all their sectional title investments, though this would be necessary if they are to have a voice in decisions.

• Once entered into a community such as a sectional title, investors, home-owners and tenants alike can find themselves in a community not fitting their own lifestyle, taste of neighbours or conduct. It might be intolerable that the neighbour you hate has a vote in your property.

• Lack of freedom to make improvements to the property is also a drawback of a sectional title property. Even where improvements are allowed it might be hard to get approval.

Subsequent articles in this series will look further into the owner’s responsibilities, legalities involved with sectional title ownership and some of the challenges sectional title management presents.

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