Advice and Opinion

Comparing full title to sectional title property

The value of a property owned in a full title legal entity is determined by the land and the property size, the area it is in and the physical condition of the property, e.g. has it been upgraded, renovated to modern standards, or still in its original state, says Johann le Roux, executive director of Propell.

The age of the building, and the materials and finishes used can be an important factor in determining value, he said.

In sectional title schemes, however, the value of the property is affected by all of the above as well as the financial position of the scheme, and if the body corporate of a scheme is in a precarious financial position, it can be a barrier to selling a property in that development.

If the financial position is not healthy, banks are unlikely to finance the property when buyers apply for bonds. If levies are above the market related value then it will be a deterrent to potential buyers and possibly have a negative impact on the property’s value, said le Roux.

If a person takes a simple example of a statement of account of a typical scheme, the accounts receivable should be a low figure, as should the accounts payable; the cash and cash equivalents should be a high figure and so should the accumulated surplus funds that the scheme has in reserve. The key is that the body corporate should have sufficient reserves/cash for an emergency or out of the ordinary event, he said.

Sometimes the scheme is in the fortunate situation where members have paid in advance, which is a good position to be in, said le Roux.

The juggle or balance of maintenance, healthy cash flow and affordable levies are the biggest challenges for trustees.

“Sectional title schemes can be good investments if the scheme is run wall and has a balanced, thriving environment, because it offers residents the opportunity to have access to many facilities they probably could not afford if they were to buy a freestanding property, which creates demand. Provided the scheme is run efficiently by the trustees, investments into this type of property can only grow in value,” said le Roux.

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