Community Scheme living has become first choice for SA home buyers

Community Scheme sales now comprise more than half of all property sales in South Africa, with price growth for this type of asset exceeding that of freehold properties for the first time in two decades.

This is according to Renier Kriek, Managing Director of Sentinel Homes. “Sectional titles made up 54% of total property sales in Q4 2023 – up from 44% in 2013. As sectional title ownership continues to gain in popularity, it may be lucrative for purchasers and investors who buy now and gain from the anticipated long-term trend,” he says.

However, knowing the ins-and-outs of sectional title schemes will help them maximise their returns and avoid common pitfalls.

What is a Community Scheme 

Although popular, many buyers – and even some realty professionals – don’t really understand the classification of the property or ownership rights  at the deeds office . It is very different from a freehold property where the buyer purchases both the land and the buildings on it.

Louise Martin, CEO of Estate Living says ‘ Within a Community Scheme there are several types of properties – Sectional Title – where the owner owns their unit and a section of the common property. Freehold Property which is when you own and maintain the entire property and gardens, Life Right, this is within the retirement area – where you have the right to live in the property for your life and the lifespan of your partner. You don’t own or maintain the gardens and property.  Life Right is more about securing your quality of life. When you pass, you estate is paid a % of the value of the property.

Why is Community Schemes so popular?

The underlining factor is security, followed by lifestyle offerings, location access to transport networks and more. In the case of a Sectional titles development are not only cheaper to build than freehold properties but also less expensive to buy, making them the more attractive option.

Life Right options have changed over the years, albeit that they can be less expensive than a freehold or sectional title property within a retirement development, the quality of the product is not diminished.

Tips for buyers

Before buying:

• Always ask to see the scheme’s financial statements to ensure its position is sound.
• Owners share the legal risks and rewards, so don’t become a prisoner to the poor money management skills of the trustees or your fellow owners.
• Check for commercial solvency
•  Check that levies are being collected promptly to prevent the scheme from falling into disrepair – this you can do by calculating the percentage of the annual levies that have converted to debtor balances on the balance sheet.
• Ask question around the management style and competency of the trustees, as well as the attitude of the community.
• Read the estate conduct rules
• Exclusive use areas, such as garages or carports, may be registered to you or assigned under the scheme rules. Always double check with a trustee that exclusive use areas you were promised by the seller or estate agent really are yours.
• Don’t forget the basics that influence the resale value of the property, such as proximity to schools, doctors and shopping centres, and other such considerations.
• If you want to make improvements to the property, such as installing solar panels, remember that you usually do not directly own any space outside the building – including the roof – so the scheme rules may prohibit you from doing so. Be sure to investigate your options before deciding to purchase.
• READ THE RULES, Property Practitioners don’t alway know the rules, you don’t want to move in with a pet only to find out pets are not allowed. Yes rules can be changed, but I wouldn’t bank on it.

Tips for investors
In addition, before investing:

• Make sure the scheme rules are favourable to your intended use, such as letting out the property or making improvements outside the building.
• Some body corporates prohibit short-term rentals like AirBnB for fear that unruly occupants could compromise the security or peace of the community. Even if these are allowed, the rules may change!