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Subdivide vs sectrionalise your big property? The pros and cons

02 May 2019

Subdivision and sectionalisation of land and larger erven is becoming increasingly common and, although both offer a number of financial and practical benefits, there are distinct differences which should be carefully considered when zoning and conditions within the title deed allow for both options.

Subdivision and sectionalisation offer numerous benefits and can yield excellent returns, however, they are not without potentially costly pitfalls, and should never be undertaken without thorough research in consultation with the town planner, land surveyor and relevant property professionals, says McKirby.

“Developers have been utilising sectionalisation and subdivision for some time to meet the growing demand for housing in areas where development is limited by lack of available land, but we are now seeing private owners apportioning off their properties for a number of reasons,” says Claude McKirby, Southern Suburbs Co-Principal for Lew Geffen Sotheby’s International Realty.

“There are significant financial advantages to be gained, including a cash injection to ease financial burden, creating an additional source of income and considerably reduced maintenance costs, rates and taxes. One can potentially achieve a higher return on investment when selling, and proceeds can also be used to finance a new house on the same erf.”

However, land subdivision and zoning are stringently regulated by a multitude of laws, regulations and bylaws so before making a final decision it is vital to thoroughly research your options, preferably in consultation with an experienced land surveyor and professional town planner, says McKirby.

Melissa Webb, a partner and conveyancer at Guthrie Colananni Attorneys, explains the difference in ownership - “when someone buys a portion of a subdivided property, it’s exactly the same as buying any other erf - you acquire the full rights and title of an owner over the subdivided portion which you have bought”.

However, when land is sectionalised, the new portion/s remain part of the original erf, with the new section being identified by a number on a sectional title plan. Usually it is the unit numbers in an apartment block or, if one large erf is sectionalised, it could be (a) or (b) of the existing address and erf number, says Webb.

“And although it’s possible to also own an exclusive use area, which would be a portion of the common property designated for your sole use, one is generally buying an undivided share in the communal property which is determined by what is known as the ‘participation quota’,” she says.

Web adds that each form of ownership has its own set of pros and cons, which she lists below:

1. Subdivided property

Pros:

- Normal Common Law Neighbour Laws would be applicable to manage the relationships between neighbours.

- You would be entitled to manage your property as you see fit without being subject to the decisions of an entity like a body corporate or a set of conduct and management rules.

Cons:

- There is no collective responsibility for maintenance of the property, the full cost of which would be for your account.

- To subdivide your property is an expensive and lengthy procedure which requires jumping through many hoops with your local authority.

- You have no say or control over what your neighbour does with the subdivided portion you sold to them.

- You have to obtain all your surrounding neighbours’ approval and signature before proceeding with a subdivision.

2. Sectional title ownership

Pros:

- The relationship between each owner of a unit is strictly governed by the Sectional Titles Act 95 of 1986, Sectional Titles Scheme Management Act 8 of 2011, as well as the conduct and management rules enforced by the body corporate.

- The scheme is subject to the oversight of the Community Schemes Ombud Service (CSOS).

- It is relatively inexpensive to establish a sectional title scheme in comparison to formally subdividing your property.

- There is a collective responsibility for the maintenance of the common property of the scheme.

- You do not need to obtain your neighbours’ permission in order to sectionalise your property.

Cons:

- Each owner would be required to pay a monthly levy to the body corporate which would go into an administrative fund to be used for things like repairing and maintaining the common property.

- In smaller schemes (say two or three units) the costs involved in some of the more complex procedures (such the accounting records of the body corporate) will be more of a financial burden than it would be if it were spread out across the owners of units in a larger scheme.

- You would need to adhere to the uniform image of the scheme, for example all buildings must be painted blue.

- You need to have an existing building with a roof on each proposed section in order to formally sectionalise and transfer the property into the name of the new owner.

Also consider

Dawn Bloch, Area Specialist in Zwaanswyk and Kirstenhof, says many larger properties in older established suburbs do lend themselves to subdivision, but owners should bear in mind that set minimum subdivision sizes vary from suburb to suburb.

“In Zwaanswyk for instance, most plots cannot be subdivided to less than 4 000sqm, although some properties have succeeded in being subdivided to 3 350sqm, while you can often split a stand half the size in Claremont into multiple plots,” says Bloch.

“However, properties in Zwaanswyk and Kirstenhof can be sectionalised, if their title deed conditions and zoning allow it. And it’s important to remember that bonded properties cannot be subdivided without the bond holder’s consent, so the subdivision will have to be approved by the lending institution as well as the local authorities.”

Subdivision and sectionalisation offer numerous benefits and can yield excellent returns, however, they are not without potentially costly pitfalls, and should never be undertaken without thorough research in consultation with the town planner, land surveyor and relevant property professionals, says McKirby.

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