So, you want to own property?
What I can do is I can help you to understand the difference between full title and sectional title properties.
When you buy a property, most people want to own the land, the bricks and mortar (including the roof) and the garden.
Freehold / Full title
The basics
So, your family is expanding and you want to move to your own place. You are thinking of buying the house down the street. It has 4 bedrooms – so your 23 children can have a bit more space – 13 of which were adopted because you are altruistic. They require a garden and a pool – you don’t want to be stuck with them inside 24/7!
You would probably be looking at a freehold or full title property. This type of property means that you own the whole thing.
Pros and cons
The responsibility rests on you for upkeep and maintenance.
You are in control of your house.
If the pool has algae the size of McDonald’s hamburgers growing in it, that’s your choice.
If you want to build an extra room in your house, you just need to submit the plans. Once they are approved, you can go wild and make magic.
If you want to add more security, then you can add an electric fence, a fierce dog and a security guard – note that you would need to pay for this yourself!
Sectional title schemes
The basics
In the second scenario, you and your wife are newly married. You need a small space to call your own. Even though you don’t want to rent, you don’t have the time to do property upkeep. Because you don’t have the time to manage the security, rubbish or gate motors breaking, it’s decided to buy a flat.
The flat on the 9th floor.
How will you own the land if your property is on the ninth floor?
So the government created something called sectional title.
The term refers to the block, including the land is seen as one unit.
Just one.
If you buy the flat, you would own a fraction of that – .a part or a section of the whole block. When it comes to freehold, you own the whole thing, you own the house, and you also own the land.
No property, not even sectional title is without maintenance. Someone has to pay for the gate motor. Someone needs to pay for the floors to be cleaned and the garden to be kept. As everyone is responsible for the bills to keep the block in good condition, everybody is responsible for paying. These fees are called levies.
For a freehold unit, the owner needs to pay and manage all of this. For a sectional title, the body corporate will collectively be held liable.
Trustees and the body corporate
You can imagine that managing this becomes a nightmare – if everyone owns a piece of the pie, how will this get managed?
In short, the owners (legally known as the body corporate) will select a few people to represent them. These will be called the board of trustees. For more info on trustees and the body corporate, check my article here.
The cool thing is that you just need to pay your levies, and the board of trustees/managing agent will make sure that the money goes to solve the issues at hand.
Pros and cons
In sectional title schemes, you have certain areas that you don’t own yourself. These are called communal areas. It includes the pool, (sometimes) the gardens and corridors. The body corporate need to take care of this – and you can often get the benefit of using this.
The trustees will hire the right people for the job – if anything does go wrong, they will be notified and will help sort this out. For example:
- If the electricity goes off for the block, these people will hire the right person to check what’s going on and resolve it.
- In the scenario that a pipe bursts on common property, the trustees (or caretaker) will sort it out
- All security outside your unit is the responsibility of the body corporate.
- The pool and gate motor is not your problem to fix or maintain
- Legally, any sectional title block needs to have insurance. This needs to be paid from levies.
- Some blocks even come and pick up your rubbish just outside your door, which is really awesome!
On the other hand, there could be issues due to the closeness that your neighbour lives to you. They can hear your arguments and disagreements.
Sometimes you need to pay special levies – this would be for something like an unexpected emergency expense like there was a nuclear explosion and all the water pipes in the block burst.
The fact is, in freehold, you would also need to pay that.
Conclusion
With freehold you own the land, the roof, the garden and everything – the whole unit.
With sectional title, you do not – if you’re on the 9th floor, you own the section of your flat (and sometimes the parking spot too!).
Both are awesome, and have a place in your property portfolio.
So now that you understand about freehold and sectional title – go now!
Happy investing.