Will freehold properties become redundant?

Freehold home in Waterkloof Ridge Surrounds

Dawid Malan, head of Strategic Stakeholder Engagement for Absa Home Loans, who recently gave a presentation at a Seeff function on the topic, said the reasons for preference of sectional title over freehold include, amongst others, pressure on consumers, scarcity of land and lifestyle changes.

Malan continued that low growth in household income and consumption expenditure with a critically low level of savings, high household debt (at around 77% of income) and consumer confidence still on a downward trend are some of the financial reasons why many buyers can only afford to invest or reside in generally more affordable sectional title holdings.

In addition to the affordability that sectional titles offer, it is also regarded to be more secure than freehold property and offers more peace of mind, there is little maintenance involved as it is lock up and go, it has sound resale value and also generally includes more modern finishes.

Buy-to-let investors

Sectional titles are especially favoured by older people looking to scale down, as well as buy-to-let investors or young couples. Its growing popularity is clearly demonstrated by the fact that in the past 20 years flats and townhouses have comprised 26.6% of all new buildings in South Africa and in the past three years 63% of all residential development funded by Absa has been sectional titles.

Still, the fact that there is and will be activity in the freehold market for years to come is unavoidable, especially since luxury, high and medium value category properties comprise 61.7% of the national property stock at a value of R3.5tn (79.5%) and most of these properties undoubtedly fall into freehold. Additionally, almost 83% of property stock in SA remains full title, while only 12% is sectional title and just over 5% are estates.

Seeff asked some of its principles in the metros and country areas in the northern regions of the country what their experience with freehold and sectional titles respectively is and if they expected interest in freehold property to dwindle any time soon.

Equal demand for both types

Steve van Wyk, Seeff’s principal in Centurion, says he does not agree that full title properties may become impractical as many of the buyers in the Centurion area in fact prefer this to sectional title.

“Although most new developments in Centurion are sectional title (except for property in the bigger estates) there is an equal demand for both property types. Full title properties sell just as well, but it is essential that the price is right.”

Van Wyk concludes that the most appealing aspect of owning a freehold property is that an owner can do with the property whatever he or she likes and there are no complex rules to abide by.

“You will always find buyers who view this as a non-negotiable term before investing in a property.”

Gerhard van der Linde, Seeff’s principle in Pta East agrees: “Full title properties in Pretoria East are as popular as ever and we don’t expect this to change in the foreseeable future. The demand for full title properties is determined by the price range in which potential buyers are looking to buy. In many instances, the financial qualification of a buyer (and not any other factor) will influence whether that buyer can afford to buy a full title property because this frequently falls into a higher price bracket than a sectional title property even though it might offer the same amount of accommodation.​

Van der Linde concludes that although there is a higher demand for sectional title than freehold in Pretoria East, they are only experiencing vacant full title properties in instances where those properties are overpriced.

“The market is relatively balanced between supply and demand for both sectional title and freehold, but it is heading towards an increase in stock levels which may eventually result in a buyers’ market."

Related to price

Charles Vining, Seeff’s principle in Sandton says demand for full title property here is fair although less than for sectional title, but the reason for this is only related to price. “Full title property is usually higher priced than sectional title property, and as a result the pool of buyers is smaller.

"Many people who invest in Sandton aspire to owning full title property, especially large South African families or families that have extended members of the family staying together.

"Property is taking longer to sell than it has been in the last two years and this has mostly to do with pricing. Well priced properties sell, and sell quickly, whether they are full title or sectional title. Most of the people who buy freehold in Sandton are end-users, but we also have many instances where international companies buy secure cluster full title homes and then use them for corporate rentals,” Vining concludes.

Chris Hajec, Seeff’s principle in Randburg says although the popularity of freehold in Randburg is slowing in direct relation to the spikes in inflation and the disproportionate rise in municipal expenses related to home ownership, there remains an intrinsic desirability found in freehold property which South Africans are not easily disengaging from.

“Freehold is becoming more expensive to maintain which has a corresponding effect on the year-on-year appreciation rate of this type of property. This will have a corrosive effect on freehold demand compared to sectional title and estate living properties.”

Hajec continues that although demand for freehold in Randburg is still robust, they are finding that properties in more expensive price ranges have​ seen a disproportionately larger drop-off in interested buyers whereas the lower price range properties have remained relatively unaffected.

Hajec concludes by saying that there is a prevalence of freehold in the older, more established suburbs of Randburg that presents a dilemma for younger people on lower salaries who want to buy their first property but, that being said, there are several affordable areas in Randburg which also offer first-time home buyers or people on a limited budget entry-level prices.

Levy costs

Moving to the Lowveld, Carien Brink, who is the principle of Seeff Nelspruit, says in this area too most buyers seeking average priced properties (around R1m) request full title properties unless there are no full title in that price bracket. Another reason for preference of freehold vs sectional title in Nelspruit is because buyers here are generally sceptical to purchase into any scheme where they cannot control the levies.

“Stock in Nelspruit is under pressure. Rental homes for example are in great demand and the area needs new developments to alleviate the current stock shortages.”

Brink concludes by saying that another major draw card of full title in Nelspruit is the fact that this type of living is pet-friendly, while many sectional schemes are not.

Billy Fick, Seeff’s principle in Secunda, says he predicts a much higher demand for sectional titles in this area in the near future than what there currently is.

“At the moment Secunda has very few sectional title units, but we also have a lot of first-time buyers who then have to buy full title properties because there is no alternative. Secunda has a buyer’s market with lots of stock and we have many vacant homes. There are many old homes in the area and we are in dire need of newer, modern homes.”

Fick concludes by saying that the possibility of sub-division, running a business from home and shared living costs among more than one family living on the same stand, are some of the reasons that freehold in Secunda is still an attractive option to many.

In Polokwane Oliver Moorcroft, who is Seeff’s principle in the area, says although freehold is still in demand here, they are finding more and more buyers who don’t like the outdated styles that many freehold homes have to offer and clients are sometimes deterred from buying freehold as they perceive the costs of updating and renovating to be very high.

All things considered, it does seem that factors such as price range and outdated homes particularly are some of the reasons why more and more people are investing in sectional title homes but, given the choice, it is also evident that many buyers still prefer freehold. And whether or not freehold will become redundant still remains to be seen…