Property Talk

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.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar
Seeff KZN Chairman
Principal - Seeff Dolphin Coast
andreasw@seeff.com