Introduction:
Commercial property investment has long been a favoured avenue for investors seeking stable returns and portfolio diversification. Within the realm of commercial real estate, sectional title ownership presents a unique opportunity that warrants careful consideration. Sectional title ownership involves shared ownership of common property, making it a prevalent model for various types of properties, including residential and commercial spaces. In this article, we explore the dynamics of commercial property ownership within a sectional title framework, highlighting both its benefits and considerations for investors.
Understanding Sectional Title Ownership:
Sectional title ownership refers to a legal arrangement where individuals or entities own units within a larger property development, along with shared ownership of common areas and facilities. In the context of commercial property, this often translates to office buildings, retail spaces, or industrial parks where multiple businesses or investors own individual units within the same building or complex.
Benefits of Commercial Property in Sectional Title:
1. Lower Barrier to Entry: Sectional title ownership allows investors to acquire smaller units within a larger commercial development, reducing the initial capital outlay compared to purchasing an entire property outright.
2. Diversification: Investing in sectional title commercial properties enables diversification within a single asset class. Owners have exposure to a broader range of tenants and industries, spreading risk across multiple tenants.
3. Shared Costs: Maintenance, security, and other operational costs are shared among all owners within the sectional title scheme, reducing the financial burden on individual investors.
4. Professional Property Management: Sectional title schemes typically employ professional property managers such as Spire Property Solutions to oversee common areas and resolve disputes, offering peace of mind to investors.
5. Potential for Appreciation: Well-maintained and strategically located commercial properties within sectional title schemes have the potential for capital appreciation over time, providing long-term growth opportunities for investors.
Considerations for Investors:
1. Complex Governance Structure: Sectional title schemes are governed by a body corporate, which may involve complex decision-making processes and ongoing administrative responsibilities for owners.
2. Risk of Delinquency: The financial health of the sectional title scheme depends on the timely payment of levies and contributions by all owners. Delinquency or non-payment by other owners could impact the maintenance and upkeep of the property.
3. Limited Control over Common Areas: While owners have control over their individual units, decisions regarding common areas and facilities are typically made collectively, potentially leading to conflicts or disagreements among owners.
4. Resale Challenges: Selling a sectional title commercial property may involve approval from the body corporate and compliance with specific regulations, which could lengthen the sales process compared to standalone properties.
5. Market Volatility: Like any real estate investment, sectional title commercial properties are subject to market fluctuations and economic conditions, impacting rental income and property valuations.
Conclusion:
Commercial property investment within a sectional title framework offers investors a unique combination of benefits and considerations. While the lower barrier to entry, shared costs, and potential for diversification are attractive, investors must also navigate the complexities of governance, risk management, and resale challenges associated with sectional title ownership. By conducting thorough due diligence, seeking professional advice, and understanding the nuances of sectional title schemes, investors can capitalize on the opportunities presented by commercial property within this framework while mitigating potential risks.
The understanding of commercial property requirements, coupled with the knowledge of sectional title requires a unique set of skills.
The trustees of such schemes would be well advised to appoint the services of an established managing agent with extensive experience commercial, retail and industrial property practices.
Spire Property Solutions is one such managing agency. We have a dedicated, sectional title division and are well-geared to offer services to commercial schemes, with specialized software and experienced staff to manage your body corporate, add value and, unlike most managing agents, which operate in the residential sector, Spire operates, exclusively, in the commercial, retail and industrial sectors.
If you require any assistance with your scheme, including POA’s registered as NPC’s, contact us today
