Stock shortages present opportunities to subdivide or sectionalise
Category Market Update
Buyer demand from up-country buyers and the many aspects of Kirstenhof that local buyers love coupled with many homeowners deciding to stay where they are, has led to an unusual stock shortage in Kirstenhof.
In many areas and cities there are now stock shortages, but the solution does not always lie in new developments due to constraints in terms of sewerage and water infrastructure. This is compounded by limited land space, especially in Cape Town where you have the geographical barriers of mountain and sea.
An alternative solution is to permit and encourage existing property owners to subdivide and sectionalise their properties. This will not only solve the housing shortage issue, but can also unlock value for property owners.
A recent Property24 article highlights the benefits and what is involved.
The first aspect is that it is not only available to developers, but also to property owners themselves. The City of Cape Town has removed the challenges of needing to rezone and open a sectional title register or wade through reams of red tape to subdivide the erf.
Before embarking, it is important to research and consult a property attorney to check what is permissible in your area and insofar as your Title Deed is concerned. Generally, it is easier to subdivide land and simply sell off a portion with title deed changes, or to build a second property on it and simply sell it off, or rent it out.
Sectionalising is a bit more complex, but could unlock more value. You can develop up to three sectional title units without needing to rezone, but will need building plan approval and neighbours' consent in some instances. If there are Title Deed restrictions, these would first need to be amended. Properties in developments can also be sectionalised if there are no existing prohibitions.
Since the property will now fall under the Sectional Title Schemes Management Act, a set of complex processes would need to be followed. For example, a Sectional Title Register would need to be opened, but can only be done once the building is roof height since the Sectional Plans can only then be drawn.
This also complicates the financing. The property generally cannot be sold on a "plot and plan" basis which usually involves a building bond registered to a third-party end-user where progress draws can be taken as the building work progresses. The owner/developer would therefore need to initially finance the development or find alternative building financing.
While subdividing and sectionalising are an expedient way to create new housing stock, these can be drawbacks and a bit costly. That said, both options could provide excellent financial benefits in the form of a cash injection. You could sell the units, or decide to rent them out. Since there will be levies payable, it would reduce the maintenance costs. It also adds considerable value to the property.
Home is our Story and property my passion. We are moving towards the end of another busy and successful property year for the Southern Suburbs and Constantiaberg housing market. It looks set to enter 2023 on a strong footing, boosted by local and semigration demand among others.
With buyer demand expected to remain strong, there are still excellent opportunities for sellers, or perhaps you may want to consider other options for your property. Whatever your property needs, please feel free to contact me for a free valuation to assess what your property might sell for, including if you were to subdivide or sectionalise it.
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Author: Gina Meintjes
