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Monday Aug 02, 2010

Be aware of extra costs in sectional title estates

Read the home owners association constitution carefully before buying into a sectional title estate, says Absa's senior economist Jacques du Toit.

Buying a stand inside a security estate might have been a dream come true a few years ago, but if your financial position has since changed, building penalty levies could be causing a headache.

To get genuine home owners to buy into developments, home owners associations have building clauses which stipulate that building must commence within two or three years to avoid inconvenience to other residents. It also helps those who have already built to maximise their investments.

However, many people's financial circumstances have changed, pushing them into situations where they can no longer afford to start or finish building. At this stage, there are possibly no other buyers for vacant land if the property market has taken a dip.

"Two types of penalty levies apply in this situation - failure to start building within a set time or failure to complete construction within a set timeframe," says du Toit.

Penalty levies can be up to eight times the monthly levy, or even more. Some estates add the two penalty levies together after three years if no building has begun, whereas they should only apply the penalty levy for failure to start building - and then they still add on the standard monthly levy.

There are differences between estates when it comes to levies, rules and regulations. Buyers need to be aware of security levies and escalation costs. Also be aware about any extra costs involved when buying such a property.

In the first quarter of 2010, it was R229 100, or 18.3 percent cheaper to buy an existing house than to have a new one built, according to Absa's Quarterly Housing Review.

The data for the second quarter shows the cost of building a new house in the middle segment of the market (houses of 80m178-400m178 and priced at less than R3.1 million) was up by 5.5 percent year-on-year in the first quarter of 2010, slightly down from 5.7 percent in the fourth quarter of last year.

Weekend Property supplement (Saturday Argus)

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