Freeholding vs. Sectional Title Ownership – Jargon Explained

In this edition of Real Estate Jargon Explained, I will be demystifying the difference between sectional title ownership and freeholding. In South Africa these are two popular forms of home ownership and they have different meanings that must be understood before one buys property.

Consider buying a townhouse in a complex of some sort. A freeholding would entitle you to the lands defined by the contract and the home upon that land. Your house would have it’s own ERF number and you would be responsible for paying all of the rates and taxes associated with this property. Now, with a freeholding there is no Body Corporate for the management of the estate, thus fees for membership of the estate are not levied. However, a Home Owner’s Association is generally set up to deal with care of the roads and communal areas within the estate. Thus, a small fee is usually paid by the members of the Home Owners Association for this service.

On the other side of the coin, sectional title ownership entitles you to the home upon the land, however that land is not your possession. The Body Corporate of the estate in which the sectional title home is a member establishes strict rules for the appearance of the home and maintenance. The fees are paid to the Body Corporate and these costs are based upon factors such as the size of the home relative to the total area of the estate. The only fees the sectional title holder is responsible for are the rates and electricity costs. Finally, if a home wants to be altered or renovated, it must cleared by the Body Corporate.

So, these considerations are important when deciding whether the home you wish to buy is suitable for all of your requirements. Good luck making your choice!

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Simple Property Bond calculator – Available for your website too!

Recently I added a simple but useful calculator for monthly bond repayments to my sidebar. All it requires is that you have the total amount of the bond, the term and the interest rate. Simply enter the values into the correct boxes on the right hand sidebar and click calculate.

You are also more than welcome to use this calculator on your website for free! Make sure you have web server access and then do the following:

  1. Right click this link and choose “Save As”:
  2. Upload this calculate.js file to your webserver and place it in any directory you want.
  3. Copy the following code into a sidebar widget (if you’re using WordPress) or something similar that doesn’t remove script tags. It can even be directly into your website html.
    <script type="text/javascript" src="[insert location of calculate.js here]"></script>
    <ul style="list-style-type: none">
    <ul style="list-style-type: none">
    <li><label>What is the Length of the Bond in years?
    <input id="maturity_box" type="text" name="Maturity" />
    <li><label>What is the Annual Interest Rate on the Bond?
    <input id="int_box" type="text" name="Interest Rate" />
    <li><label>What is the Total Value of the Bond?
    <input id="principal_box" type="text" name="Principal" />
    <li><input onclick="giveAnAnswer();" type="button" value="Calculate" /></li>
    <li><label>The value of your Bond Repayment is: R
    <input id="answer_box" type="text" name="Answer" /> </label></li>
    <li><a href="" style="font-size:7pt;color:DarkOrange">Cape Town Estate Agents Bond Calculator </a></li>
  4. Add a link to the location of the file you uploaded in step 2 in the [insert location of...] section in the above code.

You will now have a functioning bond calculator on your website! If you have any problems implementing it on your site then do drop me an email and I’ll be happy to resolve your problem :-)

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‘Gap Market’ Development in Cape Town Metro – The Good and Bad

The Cape Times reported today on Human Settlements MEC Bonginkosi Madikizela calling property developers to meet with him regarding a new development. The catch is – no ones knows where the land is. Details on what land the Government is considering is private information and will not be disclosed until the meeting.

Brief research indicates this project may be part of the Central City Development Strategy; you can read more about this here. Within this document it mentions “Some of the publicly-owned land potentially available for future mixed use, mixed income developments: Strand Street Quarry, Station Precinct, Culemborg, Foreshore, District Six, Canterbury Street Road Reserve, Government Garages and Magazine Site.” This can be found on page 33 of the document.

Government owned land in Cape Town


The aim of the development is to provide low cost housing to people earning in the R3 500 to R15 000 a month range. The developers will be paying for everything and the government will provide only the land to build on, at reduced cost.

The aim of the proposal is to provide housing to the “gap market”. In my opinion, it is a good idea to provide housing to this market and the fact that the government is handing over the development to private enterprise is promising for both the quality of the final product and the cost.

However, my immediate concern without any further information, is how can the government guarantee that the market forces of the area will not drive the price of housing higher than their targeted range? The Cape Town Metro is prime real estate and any proper development will be worth a lot on the market. Short of them forcing the property developers to sign a contract (and scaring them off) guaranteeing a price range (even linked to inflation), I can not see how this plan will not result in a tidy profit for developers and even more expensive housing in the Cape Town Metro. Defeating the purpose, of the plan.

Finally, speculation regarding which site the government will choose to develop for it’s low-cost housing? We can immediately rule out the Strand Street quarry as a potential area (Strand Street development), but I would like to hear your thoughts on the other options. Leave your comments below!

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Home Affordability Levels in Cape Town Peaked

Home affordability is a metric that measures housing costs against household disposable income. Varying thresholds are used across countries, but affordable housing in Canada for example, is defined as a housing cost less than 30% of household income.

FNB conducted a survey among Estate Agents which found they perceived Affordability of Housing to have improved since 2008 (the Global Financial Crisis). The current levels are considered to be approximately the same as 2003/2004 levels, but with considerably different economic conditions.

The 2003 property market conditions were extremely positive, with hot demand and appreciating property values; a stark contrast to the current climate. In addition, the affordability levels have been improving since 2008, but this is set to end with the SARB’s monetary policy raising the price of debt.

The reason for the same Affordability in 2003 and now, is the prime rate. In 2003, affordability was good because people had money and the economy was in a promising state. However, prime was high at 11.5% which meant costly financing. Now, people don’t have very much money to burn and the economy is only starting to show promise. But, the Prime rate is low at 8.5%.

So what does all this mean for you? Affordability, at least currently, has peaked and the low interest rate isn’t going to stay.

Reasons you should buy your home ASAP:

  • Affordability is as good as it’s going to get, at least for a while.
  • The mortgage market is going to get a lot stricter across South Africa

My interest rate forecast contradicts that of this article. What do you think Prime is going to do?

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The 4 Most Expensive Properties for Sale in Cape Town

Have you ever been taken aback by the prices for some homes? Well prepare to be thrown back by these four properties which are, as of this point, the most expensive in Cape Town.

1. Enigma Mansion: R300 000 000 - This sprawling 7049 square metre mansion, located in

Engima Mansion front view

Enigma Mansion in Camps Bay

Camps Bay is truly magnificent. It features an atelier, winter garden, gym, teahouse, marble inlay Olympic swimming pool, 3D cinema, massage temple and a herb and vegetable garden. The home can even be controlled using iPads. Anyone thinking Skynet?




2. Constantia Uitsig Wine Estate: R175 000 000 - This beautiful 60.5 hectare farm situated in

View of the mountain from the estate

Picturesque views from Constantia Uitsig

the Constantia region of Cape Town is home to 3 famous restaurants, a 16 room Hotel and Spa that are both the height of luxury and a private cricket oval so you can hear the sound of leather on willow whenever you like. In addition to a property that is 60.5 hectares, the estate has also produced a number of award winning wines which means you and your friends can get as drunk as you like on “the good stuff”, whenever you please. The rich history of the farm also guarantees that you never won’t have something to talk about. Splendid isn’t it?

3. House 3, Nettleton Ridge, Clifton – R120 000 000 - No one doubts that Clifton is easily one of

Mock-up of Nettleton Ridge in Clifton

Concept of House 3 in Nettleton Ridge.

the most beautiful coastal suburbs in Africa, and I would wager, the world. Imagine a home built on the slopes of Clifton, overlooking all of the 4+ beaches that make Clifton such a famous area and you’ve got yourself this exquisite 1627 square metre abode going for 120 million Rand. Forget that it hasn’t actually been built yet – when it is completed it will feature, apart from a priceless view – 6 bedrooms, media room, gym, spa & sauna and a wine cellar.

4. Fresnaye Opulence – R110 000 000 This beautiful 811 square metre home can be found in a cul de sac in Fresnaye, an

View of the Atlantic from Fresnaye

Look at that view!

exclusive suburb located between Sea Point and Bantry Bay on the Atlantic Seaboard. This Stefan Antoni designed home, has views of Robben Island and includes an infinity pool, 5 bedrooms, gym, playroom, media room and a lift to ferry you to all the floors of your enormous home.



Now that I have whet your appetite for prime real estate in Cape Town, consider coming here for a holiday. You don’t need to own one of these properties to enjoy the beauty in this city, but it will certainly sweeten it.

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5 Things you should know before investing in commercial real estate

If you’re new to the commercial real estate game, then this list will be indispensable in decoding jargon, understanding concepts and generally avoiding looking like a novice when it comes to brokering your deal.

  1. Understand How to Value Commercial Real Estate – Unlike residential property, the value of a commercial piece of real estate is intrinsically related to the number of square metres it has, with this number often being quoted along with the price. Be sure to evaluate and get a feel for similar properties Rand/square metre values, to see if you’re getting a good deal or being ripped off.
  2. Know that Leases on Commercial Property are Longer than Residential Property - According to Investopedia, commercial lease lengths are greater than that of residential lease lengths. The implication of this on your forecasts for future earnings would mean that, should you own the property and wish to lease it out, you will have secured a larger number of fixed payments. This is an excellent position to be in, because it removes some future uncertainty risk with regard to income.
  3. Understand what Net Operating Income is - Net Operating Income (NOI) is the value of Gross income in the property’s first year, minus the operating costs for that year. This value is a good indication of future profitability and return from the investment.
  4. Understand what Cash-On-Cash is - This measure provides you with a return figure based on the cash you paid as deposit for the property, vs the cash you receive from the property. It is often calculated for the first year and then compared to other properties to determine attractiveness.
  5. Understand what the Cap Rate is – The cap rate or capitalization rate, is the rate of return of the property based on the income that you expect it to generate. This rate is good to quote as it provides a yardstick with which to compare different investments. It does make some limiting assumptions which may be violated in the future, like constant annual income. But for an initial measure, it is sufficient.

Armed with this knowledge, you can now make more informed decisions the next time you look into a commercial property investment. Which of the 3 measures do you prefer using and why? Leave a comment and let us know!

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Tourist hotspot development on Strand street

The City of Cape Town has delayed the undertaking of the feasibility study for the Strand street quarry, IOLProperty reports today, owing to legal costs related to the arbitration proceedings for Cape Town Stadium consultants.

The City has been planning to turn the Strand street quarry into something of a “tourism hotspot”. This move comes because of the quarry being home to many criminals pretending to be homeless, and the subsequent muggings occurring  in the area. The hotspot would include a shuttle service from the quarry to the lower cable station.

What does this mean for local Real Estate? Well with the abundance of tourist activity around there in the future, the hip and happening nearby area of “De Waterkant” may make a great speculative investment for those looking to benefit from the increased tourist activity.


De Waterkant – a local hip and happening suburb.

This is, of course, contingent on the feasibility study giving the green light to City planners. If the study is unsuccessful, considering the abundance of local night-life, centrality and the nearby upmarket shopping centre “The Cape Quarter”, this would be a wise investment nonetheless.

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Mortgage market in SA set to become a lot stricter

If you haven’t already heard, there are big developments on the way for potential SA home-owners. The Department of Trade and Industry and National Credit Regulator are spearheading a credit amnesty programme which will remove credit histories for up to 2.2 million consumers in South Africa.

Sounds like an excellent idea for the growing base of South Africans in a financial dead-end right? Well not so much.

Image Source:

Image Source:

With the removal of credit histories, banks and bond originators analysing the risk of clients will have a lot less information to base their decisions on. This problem is referred to in Economics as “credit market information asymmetry”. Should the amnesty be implemented, every consumer is effectively equal in terms of riskiness. Now, if the bank were to offer all consumers the lowest rate they offer, then they will lose money because a proportion of their clients are ‘actually’ risky and thus are receiving a lower rate than they would if their credit histories weren’t erased.

Of course, banks wouldn’t implement such a policy, so to avoid losses they will charge a higher rate to everybody. That means, once the amnesty has taken place, that even ‘good’ consumers will pay a lot for their bonds and mortgages.

What can be done?

With the implementation of the plan, if at all, happening in October, the best thing for you as a consumer with a clear credit history, is apply for your home loan as soon as possible or you may be paying a lot more than you should! After the implementation, I forecast the mortgage and property bond market becoming a great deal stricter as banks try to find ways of managing the risk of their clients defaulting.

If you’re wondering where to buy your next property, take a look at this article.


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The property suburb you need to be watching

Property buyers are always looking for the next hottest area, just before it becomes too hot to touch. This is the most basic of investment philosophies – buy low, sell high.

Current market information dictates that South Africa’s GDP is making a comeback – 3% growth for this quarter. While it is by no means what we hope for in an emerging market, it IS an improvement considering the world’s current economic standing. This 3% growth on the back of China’s flagging demand and impending slump, means that South Africa is still set to ride the wave fairly comfortably.

So what does this mean for you as an investor? Well with rates currently sitting at 8.5% Prime, you can expect them to fall at the next meeting of the SARB. Why? South Africa needs to continue stimulating growth if we truly expect China to continue the slump.

Why is this good for you as an investor? This is the time to get into property if you haven’t already and secure that low interest bond the moment it becomes available. The place you’ll invest Kenilworth. The main road Kenilworth is undergoing development, and with the big name behind it, could introduce a small-time mall with a convenience store (SMWACS). This will greatly improve the areas appeal for small families, Yuppies and even students. The abundance of great schools in the area and Cavendish Square, an upmarket shopping mall fairly close by, makes it a no-brainer for any person looking to buy property.

In a few years when people have money again and are looking to buy their first house, don’t you want to be the one saying “I love it when a plan comes together.” Cigars not included.

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5 Core Principles for Real Estate Investing

Are we being kept in the dark when it comes to the how to of Real Estate investing? If we take a look at all the famous property tycoons, Donald Trump etc., we think there must be some kind of secret. However the truth is, there isn’t. There are, however, certain golden fundamentals that everyone from the veteran to the novice follow when investing. Many of which are actually just obvious.

At present, there are many bargains on the market; stressed home-owners frantically try to realize their property investments, keep their financial stability, and avoid bankruptcy. Bear in mind however, if you see a deal that is too sweet to be genuine then it most likely is.
Research whether there will be any major changes being made to the are, such as a power station, sewage treatment, or even a highway. These things will cut into your profits.
What reason do you have for investing?
There are many reasons people choose to enter into property investment. Do you desire a long term investment, earning you rent, or are you looking for real estate you can quickly improve and sell for a gain? Is your focus on the difficult and often troublesome residential real estate market, or do you prefer the more reliable commercial real estate market?
Identifying your goals is the first step in determining your investment plan.
Attitude toward Risk?
Risk is always coupled with reward. However that doesn’t mean actual reward, more like potential reward. Can you handle this often incredibly stressful Real Estate market? If you think you can then that’s excellent.
But, there’s no point choosing a greater risk real estate investment portfolio if you can’t handle the stress that comes with it.
Do you prefer safer choices? Then real estate investment can definitely still work for you, however make sure to choose property in established areas, where your rent and sure growth is more likely.
Don’t Overextend Yourself
It is tempting, when experiencing the excitement of a successful real estate investment, to bite off more than you can chew. Think about the eventuality where you can not find occupants for your rental properties, what then? The best thing to do is consider the pros of and cons of the situation while bearing this in mind.
Property Investment is Safe
The fact is, property is still a safe, profitable investment decision. Realising your goals, attitude, and whether you’re in property investment for the long term, or just for a quick Rand, will aid you in making sound choices, generating a well spread portfolio and plenty of financial return for many years.

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