Should you subdivide or sectionalise when you want to sell a portion of your property?

Subdivision and sectionalising of land and larger erfs is becoming an increasingly common way for property owners with larger erfs to sell off a portion of their land, but, although both options offer a number of financial and practical benefits, there are distinct differences which should be carefully considered.

Although already common practices among developers in order to meet the growing demand for housing in areas where development is limited by lack of available land, it’s only recently that we are starting to see more and more private owners splitting off their properties.

What are the benefits of subdivision or sectionalisation?

There significant financial advantages to be gained, including;

1. A cash injection to ease financial burden;

2. Creating an additional source of income,

3. Considerably reduced maintenance which saves in time and costs;

4. Lower rates and taxes;

5. The potential to achieve a higher return on investment when selling.

Regulations

Land subdivision and zoning are strictly regulated by a multitude of laws, regulations and bylaws so before making a final decision it’s critical that you thoroughly research your options, preferably in consultation with an experienced professional town planner.

Every city has its own regulations and these often also differ from suburb to suburb, so make sure you know whether you are able to subdivide or sectionalise before you start investing time and money.

What’s the difference between sectionalising and subdividing?

The main difference lies in the ownership: When someone purchases a portion of a subdivided property, they acquire the full rights and title over that portion as one does with any freehold property.

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 which is usually the unit numbers in an apartment block but could also be ‘a’ or ‘b’ of the existing address and erf number.

Pros and cons

Each form of ownership has its own set of pros and cons:

Subdivided Property:

Pros:

1. Normal Common Law Neighbour Laws are applicable to managing the relationships between neighbours;

2. You are 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:

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

2. Subdividing property is an expensive and lengthy procedure through your Local Authority;

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

Sectional Title Ownership:

Pros:

1. The relationship between each unit owner is 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;

2. The Scheme is subject to the oversight of the Community Schemes Ombud Service (CSOS);

3. It’s relatively inexpensive to establish a Sectional Title Scheme in comparison to formally subdivide your property;

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

Cons:

1. Each owner is required to pay a monthly levy to the Body Corporate’s administrative fund to be used for things like repairing and maintaining the common property;

2. In smaller Schemes with fewer units, the costs involved in some of the more complex procedures will be more of a financial burden than it would be if it were spread out across the owners in a larger Scheme;

3. You often need to adhere to the uniform image of the scheme, e.g. all buildings must be painted white.

Additional factors to bear in mind

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 Bishopscourt, for instance, most plots may not be subdivided to less than an acre (4046m²), whilst you can often split a stand half the size in Claremont into multiple plots.

It’s also 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.

And many properties will have conditions in their title deeds stating that no more than one dwelling despite its municipal zoning allowances, and the condition would then first have to be uplifted.

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 and relevant property professionals.