Full Title versus Sectional Title? In a
market where one often finds design and size similarities between the two, it
is interesting to analyze the relative price growth performance over the past
few years to get an understanding if any clear advantage exists of one form of
ownership structure over the other. Traditionally apartments in high-rise
buildings or cluster developments have been sectional title and freestanding
homes have been freehold. This will continue to be the case, but often nowadays
a development of freestanding homes may be sectional title.
In the pre-2008
boom years, the sectional title market was buoyed by 1st time and
buy-to-let buyers and caused a “boom-time overshoot” in values of smaller
sectional title properties relative to larger full title properties, where the
less cyclical family demand plays a bigger role in underpinning values. As an
example, and according to FNB’s published 3rd Quarter 2012 House
Price Review, during the pre-2008 house price boom, the average price of a
3-bedroom sectional title home was in excess of 20% higher than the average
3-bedroom full title home. Over the past four years however this gap has
narrowed to an insignificant 0.6% as full title house price growth has exceeded
sectional title price growth. The
year-on-year price growth of the FNB Full Title Price Index in the 3rd
quarter 2012 was 6.7%, down from the previous quarter’s 9.3%, but still ahead of the FNB Sectional Title
Price Index which grew by 4% in the 3rd quarter (down from 4.4% in
the previous quarter).
As demand for full title homes has exceeded sectional
title demand in recent years, many developers have preferred to develop
freehold homes on any given vacant land opportunity. Whereas the two-bedroom
segment dominates the sectional title market, the three-bedroom family home
dominates the freehold segment. Although not directly comparable as freehold
typically offers more space, and sectional title typically offers lower running
costs due to shared amenities, it is interesting to note that for similar sized
properties, the difference in average price between the two legal structures
has all but disappeared. With the advent of large gated communities, which
characterize our Dolphin Coast development landscape, the security
consideration is no longer any different between sectional title or freehold
properties, within any given development. We do however find a significant
difference between pricing of both freehold and sectional title properties,
which are not within the larger estates.
A common misperception in the market
is that sectional title levies imply that for sectional schemes within an
estate, the owner pays a “double levy” in that an estate levy and a body
corporate levy is payable. While this is true, this does not mean that the running
costs of a sectional title property are higher, as you have to consider what
cost line items are included in the body corporate levy budget. These costs are
also typically incurred by freehold property owners, in one form or another,
and when the detailed comparisons are made, a sectional title property will
typically cost less to run than a freehold property.
(Author: Andreas Wassenaar, Published in The Bugle, 28th Nov 2012)
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