Have you heard the story about the first-time home buyer who bought an apartment in a sectional title complex only to find out that the body corporate was in arrears with the municipality and owed millions for water, rates & taxes and electricity? Read our guide to buying sectional title and make sure that you ask all the right questions before you buy.
How sectional title worksWhen you buy a sectional title you are buying your unit in its entirety but you also have some level of ownership of other common areas like walkways, gardens, reception areas or parking garages.
You will automatically become a member of the body corporate – a voting collective representing all the owners in the complex. The body corporate elects a board of trustees every year and these trustees are responsible for the running of the complex and for managing its finances.
In addition, in some cases, a managing agent helps run the complex, manage the finances and maintenance as well as collect the levies.
You don’t have decision-making autonomyIf you buy a free-standing property, you can do whatever you like with it as long as you don’t contravene any municipal regulations. You can have pets and paint the walls orange and pave over the garden if you like. When you buy a sectional title, any alterations you make will have to be in line with the rules of the body corporate. Ask to see those rules before purchasing the property, so that you’re not in for any nasty surprises.
You will have to pay a levySectional title owners are obliged to pay a monthly payment called a levy. Each complex has monthly expenses which are funded by a monthly levy paid by each owner based on the size of the unit they own.
This levy will fund the care and maintenance of the complex’s exteriors and its common areas and covers things like municipal services, security, garden maintenance and insurance. Since 2008, rates and taxes are supposed to be billed to individuals in complexes but many owners have never received these kinds of bills and these costs are still included in the monthly levy.
Before you make an offer on a unit, you should make sure that you will be able to afford this monthly levy on top of your bond repayments and utilities.
You might have to pay a special levyIn addition to the monthly levy, if there is some type of extraordinary expense, the trustees may call for a special levy. Special levies can be expensive, so get in touch with the body corporate before you make an offer to purchase to find out if there are any anticipated additional expenses.
You should also take a careful look at the whole property (not just the unit you are considering) to assess for yourself whether you think there will be any additional expenses in the near future. Look out for flaking paint work, crumbling plaster, cracked foundations or any other obvious signs of age or disrepair.
You will be responsible for any existing debtsIt’s also a good idea to ask to look at the books of the complex before making your offer. Once you have bought a sectional title you are obliged to meet the financial obligations of the complex and if there are any outstanding debts you will be partly accountable for those even though you weren’t responsible for obtaining them. It is unusual, but it can happen that the complex has allowed a large debt to accumulate which could put you in a precarious financial position as a sectional title holder and make it difficult for you to sell your property. Make sure that the complex is not in arrears with the municipality and that it has an emergency fund saved for unforeseen expenses.
A good investmentWhile all this may make buying a sectional title sound daunting and complicated, most complexes are well run and financially sound. The active members of the body corporate are usually socially minded and helpful people who want the best for the complex and its surroundings. Get involved in the running of your complex and watch your investment grow!