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Sectional Title vs Freehold Ownership

Confused about sectional titles and freehold ownership?

Sectional Title vs Freehold OwnershipWhen it comes to property investments, sectional title ownership has become increasingly popular over the last few years. This move can be accredited to a number of reasons, including security and affordability. On the other hand, freehold ownership is still very much a sought-after option for investors.

If you’re looking into how to build a property investment portfolio, it’s important to understand the difference between freehold and sectional title ownerships. Once you can see the differences, you’ll also be able to see the value and benefits of each.

What constitutes freehold ownership?
With this type of contract, full ownership rights are transferred to the buyer. The contract then includes the building and the land it sits on. This kind of deal is usually used for free-standing houses, cluster houses, small holdings and residential properties that are used for business purposes.

Benefits:

  • Freedom to renovate – Owning your entire property outright means that you can renovate or redecorate as you wish. You won’t be subject to any rules with regards to maintaining a particular look for all buildings and gardens. This is particularly good if you’re aiming to buy distressed properties and flip them for a higher resale value.
  • No rules and regulations made by committees – As the sole owner of your property, you’ll have free reign to make decisions on all matters that arise. There will be no committee or body corporate that you will need to get approval from.

What does sectional title mean?
This type of ownership describes a contract where the buyer owns a section or unit within a complex, building or development. The property owner only has claim to their particular unit, such as a semi-detached house, townhouse, apartment or flat, or duet house. In sectional title cases, the entire property or development is governed by a body corporate, which is made up of unit owners within the complex. Together the unit owners make the decisions on the monthly expenses, security and maintenance of the complex.

Benefits:

  • A secure home – Owning property within a complex or block of flats is usually far more secure than a free-standing house. This is because each unit is in close proximity to its neighbours, and the points of access are secured. This means that if you have an investment property you want to let out, you can list safety as a bonus to potential tenants.
  • A fixed monthly levy – A body corporate will charge all unit owners a fixed fee that includes insurance, maintenance of the common areas, security and any staff required for these tasks. As the owner of a unit, you’ll only be responsible for your unit’s electricity and water consumption. All other costs are built into your levies.

What should you go for?
There is no easy answer when it comes to the question of how to buy investment property. However, the best advice would be to consider what you require from your purchase. Are you looking for something to rent out, or perhaps to get below market value properties that you can renovate and resell for higher? The answer to this question could help you to decide between freehold and sectional title ownership.

2 Comments

  • Claire BrandonReply

    One has to be aware when buying sectional title that good managing agents are hard to come by. It must be ascertained that a professional managing agent is in place to ensure fast and effective dispute regulation as well as handling of the financials of the complex.

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