Home Loan Talk – Sectional Title vs Cluster Ownership

Home Loan Talk – Sectional Title vs Cluster Ownership

Private Property South Africa
Denise Simpson

There is much confusion surrounding sectional title ownership and cluster

ownership. Both types of complexes look and feel the same and when purchasing a

unit in one of these developments it is important to understand the difference

between the two types of ownership.

What is sectional title ownership?

Sectional title ownership was only introduced into the South African market in

June of 1986 providing a better form of title for apartments, previously only

able to be owned in a shareblock. Sectional title provides that you can own the

improvements on the property, without owning the property itself. It is a much

more acceptable security for the banks and home loans can be obtained fairly

easily for both existing sectional title properties and new developments.

Sectional title complexes are run by a body corporate and the operation of that

body corporate is regulated by law.

What are cluster complexes?

Cluster complexes on the other hand are held under "freehold" title, which means

that you not only own the improvements, but also own the land that the unit sits

on. There is a "homeowners association" which run and administer the complex on

behalf of the individual owners, and that association's operation is governed by

a set of rules agreed upon by the original owners of the units when they

purchased from the developer.

When the bank lends on any existing sectional title property they will always

call for a copy of the body corporate financials, to ensure that the complex is

solvent, the building is adequately insured, and not in arrears with rates and

taxes, etc. If the body corporate financials are not up to their standards, they

will decline the home loan.

Buying sectional title off-plan is most attractive because the price you pay

includes all the holding costs until the completed unit is transferred into your


A CLUSTER on the other hand will most often be packaged as a land sale

with a building contract. This means that you will pay the holding cost while

the unit is being built, not only on the land, but also on the amount paid out

to the developer as the construction progresses.

Once the first transfer has gone through in a new development, the owners will

need to form a body corporate to run the complex, often in conjunction with the

developer until such time as the last transfer has been affected. The developer

is obliged by law to initiate the inaugural meeting of the body corporate and to

hand over all financial documents to the newly-formed body corporate. A body

corporate must initially establish rules for the management of the complex and

determine what levies will be charged per unit.

More about Sectional Title ownership

Although you always own your actual improvements or top structure, there is

another form of ownership of areas called exclusive use. These are most often

parking bays and gardens that are literally for the "exclusive use" of the owner

of a particular unit. Although the right to these exclusive use areas is passed

from owner to owner, it is not part of your title. These exclusive use areas

lumped together with other parts of the property such as the driveway and

communal pool facilities are referred to as 'common property' and are jointly

owned by all the unit owners depending on the size of your unit. The amount of

this space that you own is referred to as the PQ, or Participation Quota, and

all expenses are divided up and split according to this number.

Rules apply, always

Potential buyers should be aware that in purchasing either sectional title or

freehold cluster homes, the rules can be legally imposed. Often there is a

restriction on animals, so if you have dogs or cats make sure they will be

allowed in that particular complex. There are many other rules which may not

suit your lifestyle, which is why it is wise to read these rules before you

purchase. ALWAYS ask for the Management Rules regardless of whether you are

buying into a sectional title or cluster development before you buy and ask for

the financial statements. The bank certainly will.

Lastly, it is important to realise that the trustees of any body corporate have

the authority to act on your behalf in nearly all matters concerning the running

of a complex. The trustees are not paid for their efforts, and their work is

voluntary. If you want to get things done and be in a position to influence

decisions, then get involved!


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