Sectional Title or Freehold? What the differences mean to buyers.

With so many different types of secure development now all falling under the Community Housing Schemes Ombud Service Act, it's important for homebuyers - and especially those buying for the first time - to be aware of the differences between Sectional Title and freehold properties in these schemes, and how these differences are likely to affect them in future.

So says Andrew Schaefer, MD of leading property management company Trafalgar, who notes that there is even a mixture of freehold and Sectional Title properties in certain gated estates now, while Sectional Title ownership is certainly not restricted to high rise apartment buildings or townhouse complexes.

"However, no matter what they look like, the most important difference between Sectional Title and freehold property developments is the fact that in a Sectional Title scheme, you are buying a share in the common property in addition to your own apartment, townhouse or house.

"This common property includes the land on which the whole scheme is built, as well as gardens, parking, any other shared amenities and security equipment such as electric gates and fencing, CCTV and biometric scanners. And you will be liable to pay a monthly levy to cover the maintenance and repair of this common property, as well as certain other items." 

On the other hand, he says, when you buy a freehold or full title home, you acquire exclusive ownership of an entire property, including the land and any structures on it - although if it is in an estate, you will also have to pay a monthly levy to the homeowners' association (HOA) to cover the maintenance and upkeep of common areas, roadways and the security provisions. Your personal homeowners' insurance cover (HoC) will, however, not be included in this levy.

Additional information: 

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, shared that as a homeowner in an estate or boomed-off area, the buyer may be required to join a homeowners' association (HOA), which means adhering to numerous rules and regulations stipulated by the HOA.

Unlike a body corporate which manages a sectional title development, he says in a Homeowners' Association each member owns the house and the erf or plot on which the home is situated. Usually established by the residents within a community, an HOA is formed to ensure that the infrastructure of an area is maintained. Another major role of an HOA is ensuring the safety of those who live within the community.

According to Goslett, the rules and regulations laid out by an HOA can address numerous aspects such as the colour that a homeowner is allowed to paint their home or whether pets are allowed on the premises.

"The stipulations can be restrictive, which is why those who want to buy a home within a community that is governed by an HOA should ensure that the regulations don't conflict with their lifestyle," he says.

Before purchasing such property, buyers need to do their research and delve into the details of the HOA regulations.

Goslett provides a few aspects to consider about HOA's:

Are members required to pay a fee?

It is not uncommon for members of an HOA to pay a monthly premium or levy towards the association. Compare how the monthly fees match up against other similar developments in the surrounding suburbs.

How are the fees allocated?

It is important for homeowners to know where their money is being used and allocated. Most of the time, HOA fees are allocated to the maintenance of common areas and amenities, such as landscaping, the swimming pool, gym or clubhouse. Potential buyers should find out what is included in the fee and what is not.

Have rates been hiked recently?

While doing their homework on the HOA, buyers should get the history of how much and how often the rates have increased over the last ten-year period. Looking at the past will provide a window into what to expect in the future. Another important aspect to enquire about is whether any additional fees have been charged to homeowners when the HOA lacks the reserves to cover a big project.

What are the community's priorities?

Reading the minutes of the last few HOA Annual General Meetings will give potential homeowners a clear idea of the community's priorities and what issues and topics keep rearing their heads.

Pay attention to the fine print

Don't neglect any aspect of the document and read through all regulations, restrictions and conditions before committing to buying the home. It will take some time to read the documentation in its entirety, but it is better to do it beforehand than move in and find out that you are unable to park a second car outside the property or store a caravan in the garden. Rather know up front, than be caught unaware with little recourse.

Penalties

What are the consequences if the regulations are not adhered to? It is essential for buyers to be aware of the penalties for non-compliance.

Goslett says before purchasing any property, governed by an HOA or not, it is vital that the buyer understands all aspects of the purchase and knows what they are getting themselves into. Having a clear idea of the regulations and rules an HOA has in place will provide some insight when choosing to buy a home in a particular estate.

Sectional Title schemes

"Meanwhile when it comes to home maintenance, owners in Sectional Title schemes are only responsible for any maintenance or repair needed inside their own unit, and do not need to pay for HoC, only for insurance on the contents of their units. Exteriors and the common property are the responsibility of the body corporate, which must also ensure that the whole complex is adequately insured and pay the local authority for any services provided to the common property, "says Schaefer.

Another major difference between Sectional Title and freehold ownership, Schaefer says, is who has control over what you can do with your property. "All community housing schemes have certain rules and policies that everyone must follow, but if you buy a freehold home, you will have more control over decisions related to the use of your own home. It will be easier to make additions or alterations, for example, or to decide what to plant in your garden, or to install a rooftop solar system. 

"In a Sectional Title scheme, all those decisions would have to be made by the body corporate, and there will most probably be additional rules regarding noise, parking, pets and the use of any shared amenities such as pools, laundries or tennis courts. You are also likely to live in closer proximity to your neighbours, which can create privacy issues."

A third important distinction between Sectional Title and freehold properties, he notes, is price. Sectional Title properties are often more affordable and thus accessible, especially for first time buyers - although this is not always the case. "There are luxury Sectional Title apartments in both Johannesburg and Cape Town, for example, that cost considerably more than large freehold homes in upmarket lifestyle estates.

"And it is crucial to remember that the value of a home in any community housing scheme, as well as its resale potential, will be heavily influenced by the condition of the complex and good financial management on the part of either the body corporate or the HOA.