A century old point of discourse in this industry is freehold vs sectional title vs estates. What are the differences between the three?
A freehold or full title property can be defined as any estate which is "free from hold" of any entity besides the owner. Hence, the owner of such an estate enjoys full ownership of the property, including the building and the land it is built on. These kinds of properties include free-standing houses, cluster houses, residential property used for business purposes and smallholdings.
Freehold is a more traditional form of residential property ownership in which the owner is responsible for all the bills and maintenance of the property, including taxes, insurance, upkeep, security, electricity and water bills.
The sale of a freehold property does not require consent from the state and hence requires less paperwork, making it more expensive than leasehold property.
A sectional title scheme is made up of individually owned sections and common property. Sectional title dwellings include detached houses, townhouses, flats or apartments. The owner of a sectional title property enjoys exclusive ownership of the unit or section that they have purchased, as well as an undivided share of the common property.
The common property includes but is not limited to: the security systems, the driveway and parking bays, the clubhouse, gardens, pool, braai facilities and the external (outer) walls and roofs of the buildings which house the sections, and is maintained by the body corporate. Your monthly levy is your contribution to the maintenance fund of the scheme and is compulsory as stated by South African law in the Sectional Titles Schemes Management Act 95 of 1986.
Historically, an estate comprises of houses, outbuildings, supporting farmland and woods that surround the gardens and grounds of a very large property; such as a country house or mansion. It is the modern term for a manor. It is an "estate" because the profits from its produce and rents are sufficient to support the household in the house at its centre, formerly known as the manor house. Thus, "the estate" may refer to all other cottages and villages in the same ownership as the mansion itself, covering more than one former manor
When you buy into an estate, the future value of your property will be affected by how well the whole development is managed. Buying into an estate is more complicated than buying a stand-alone home, because the future value of your property will depend not only on its individual location and condition, but on how well the development as a whole is managed by the homeowners’ association (HOA).
What are the performance indicators?
Recent property market insights provided by Lightstone Property (Pty) Ltd show that sectional titles, freeholds and estates perform differently.
Sectional title sales of properties aged 30 to 39 years outperformed other age bands of properties in terms of average property growth per year, at 4.7%. This is followed by units aged 20-29 years showing an average growth of 4.2% per year, over the last 10 years. In the last five years alone, the 30-39 age band of sectional title properties that sold realised an average of 29% compared to 22% for the 20-29-year-old sectional units.
In the freehold market, Generation Z of the property market cannibalise market share from the 10- to 19-year-old properties with an average growth of 5.4% over the last 10 years. KwaZulu-Natal specifically shows that 50% of all freehold properties sold in 2019 were 20-29 years old.
Interestingly, estate sales for the 5 to 9-year-old properties were at their highest from 2012 to 2015, but have subsequently been overtaken by sales in the 10 to 19-year-age band, with married couples dominating the sales in this segment of the market.
The outlook above should provide property buyers with critical insights before making a property purchasing decision.