Sectional Title or freehold? What the differences mean to buyers

With so many different types of secure developments 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.

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, 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: 

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, 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.

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.

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

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.

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.

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.

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, 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. 

Extract from Property 24