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Sectional title or freehold: what type of residential property ownership is best?

Sectional title, freehold or cluster home; what is the best kind of residential property to buy? According to Trish Luthuli, new business executive, Pam Golding Properties Gauteng, it all depends what you are looking for in a home.


This cluster home in Fernbrook Estate, Johannesburg, is on the market through Pam Golding Properties for R4,5 million.
 
“It is important to have some understanding of these different types of properties before you consider purchasing a home,” advises Luthuli.  “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 believes that a well-chosen residential property of any type remains a sound investment. She says that 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 – a notable improvement on the average annual increases of 5.1% and 3.5% recorded in 2013 and 2012 respectively.
 
Luthuli explains that there are effectively only two forms of residential property ownership in South Africa: freehold and sectional title. Townhouses, simplex/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,” adds Luthuli. “Freestanding homes in residential areas are usually held in a freehold form of ownership, as are many properties in gated estates.”
 
Luthuli notes that 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. 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.
 
“Cluster developments are usually governed by a homeowners’ association with a constitution that is drawn up by elected trustees,” points out Luthuli. “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. 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 purchase 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,” advises Luthuli. “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. 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, adds that 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. Approximately 40 percent of property sold by Pam Golding Properties in Gauteng residential suburbs in 2014 comprised sectional title units.”
 
“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,” observes 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 points out that 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.
 
“Freehold properties may offer other advantages for the family,” suggests Shaw. “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.”
 
“There is a wealth of different types of homes available in Gauteng and something for everyone. However, I would advise home seekers to ensure that they understand their obligations as an owner prior to purchasing any property. An experienced agent who understands the market and who has your best interests at heart will be able to assist. This will help to ensure you choose a property which is right for you and will grow in value,” concludes Luthli.


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