The pros and cons of buying sectional title property

Here’s all you need to know to make an informed decision about whether to invest in sectional title property

With more and more consumers opting for the lifestyle and peace of mind that residential estates and complex living offers from a security perspective, the property experts say buying sectional title property either for yourself or with the intent to rent it out is not a bad idea at all.

From a homeowner’s point of view, Pam Golding Properties CEO Dr Andrew Golding says that residential estate properties generally have better “staying power and usually perform better than the value of the property in neighbouring suburbs”.

“In terms of value, currently estates account for around 22% of the market’s total sales value, up from 20,5% pre-recession and remaining fairly stable since late 2013, while unit sales in estates currently stand at around 14% of total market sales,” he says.

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From an investment perspective, the latest TNP-FNB Residential Yields Review shows that sectional title properties remain the most attractive proposition among tenants with gross yields varying between 8,8% for a one bedroom property, 9,2% for a two bedroom and 9.01% for sectional title properties with more than two bedrooms.

Generally speaking, sectional title property will in most cases cost you less than a free-standing home in terms of levies and the day-to-day maintenance of your property and they’re usually safer than stand-alone houses.

“In sectional title estates, the responsibility for the general upkeep of the property is shared between all section owners and managed by the Body Corporate with or without the help of a managing agent,” says Rawson Property Group MD Tony Clarke.

“Sharing this load across a committee lessens the responsibility of each individual and allows the estate to benefit from a broad variety of members’ knowledge and skills.”

The pitfalls

Since living in a complex is all about living within a community of people with prescribed rules and regulations, being a sectional title property owner restricts your freedom somewhat in terms of architectural and décor choices, visitation hours, the use of communal spaces and when you can make noise.

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“The problem with the shared responsibility and decision-making of sectional title estates is that not every decision is guaranteed to go your way and you may well find yourself disagreeing with your Body Corporate on occasion. This isn’t always a big deal, but if the majority does vote in favour of a major change that you feel is a bad idea, you won’t be able to do much about it even if it ends up having a negative effect in the value of your investment,” Clarke says.

Another aspect to take note of before acquiring sectional title property is the owner-to-tenant ratio.

Ideally you should look at investing in complexes where there’s a higher proportion of owners compared to the number of people renting because homeowners generally tend to take better care of the property than renters do and this will help maintain the value of the property.

“Two pieces of advice which I would always give to people contemplating buying into any sectional title scheme are, firstly, insist on seeing the scheme’s accounts. They are by law obliged to give these to you and if you can’t understand these, check them with an accountant,” says Clarke.

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“The second piece of advice is to beware of schemes in which there are too many tenants because there should always be a satisfactory ratio between the tenants and the owner residents for the simple reason that the latter look after their properties far better than the former.”

See how much information you can find out about about the complex’s Body Corporate and whether it is being governed properly.