Sectional title: Beware of the pitfalls

MODERATELY priced high density sectional title apartments of the kind which have proliferated throughout South Africa have proven to be an excellent investment, says Tony Clarke, the managing director of the Rawson Property Group.

“These high density schemes have provided the ideal entry point to the home market for many people who otherwise would not have been able to afford to buy a home,” says Clarke.

Nevertheless, he warns, there are risks and pitfalls associated with this type of purchase, which have to be examined and checked out before any Deed of Sale is signed.

“About 20% of South Africa’s high density sectional title developments are experiencing financial problems. Regrettably, the units in such schemes frequently lose value or, if they do show some value growth, they do so at an unsatisfactory rate.”

This, says Clarke, has in most cases come about because sectional title units are governed and controlled by committees of members, i.e. owners of the scheme elected by their fellow members. Such people, he says, often do not have the business, accounting or legal knowledge necessary for a job of this kind.

Poor administration and a lack of leadership in sectional title schemes all too often, says Clarke lead to levies being too low and or in being inefficiently collected or not collected at all. It also frequently leads to inadequate maintenance of the buildings and dangerous lapses in the security arrangements. These, plus other factors, can and do affect the values of all the units in the scheme.

In certain developments, adds Clarke, buy-to-let investors form a large proportion of the client base and then compete for tenants by lowering rents. This, in turn, can lead to the quality of the tenants falling below desirable standards.

“Two pieces of advice which I would always give to people contemplating buying into any sectional title scheme,” says Clarke, “are, firstly, insist on seeing the scheme’s accounts (they are by law obliged to give these to you) and if you cannot understand these, check them with an accountant.

“The second piece of advice is to beware of schemes in which there are too many tenants because, as indicated, there should always be a satisfactory ratio between the tenants and owner residents for the simple reason that the latter look after their properties far better than the former.”

“There are many advantages of sectional title units quite apart from what is usually a lower cost,” says Clarke.

“Single people and single parents, families with children and older people can often benefit from the improved security of such schemes and from being able to enjoy the communal facilities like swimming pools, large gardens, crèches, launderettes, tennis courts, gyms, cafés and playgrounds to which they would not have access if they lived in freehold properties.”