Unit Titles (Stratum in Freehold) – What are the pros and cons?

A unit title (also known as stratum in freehold), is a type of land ownership.

It’s where you buy an apartment or unit. You own your specific unit, but collectively own the land with the other owners in the development.

Most apartment buildings are stratum in freehold (unit title). But, sometimes townhouses are also unit title (stratum in freehold).

This shared ownership of the land (and any common areas) is a key aspect of unit titles.

What’s the difference between stratum in freehold and unit title?

“Unit title” and “stratum in freehold” are different words that mean the same thing, so people in property will use them interchangeably.

The Unit Titles Act 2010 introduced the term “unit title”, but it’s the same thing as stratum in freehold.

Now, be careful. Don’t confuse “stratum in freehold” with a freehold title.

When you own a freehold property, you own the building and the land yourself.

When you own a stratum in freehold property, you own the interior of your unit. You then own a share in the land with other people.

What are the pros and cons of a unit title?

Unit title (stratum in freehold) properties tend to be cheaper than freehold properties, so they can be a great way to get onto the property ladder earlier.

Here are the main pros and cons:

Unit title properties, like apartments, tend to be in central locations. They might be closer to the inner city, where standalone homes are expensive and rare.

When you buy a stratum in freehold (unit title) property, there will be a body corporate. This is an entity that manages all shared areas. They collect money from the owners of the units. Then, they will organise maintenance of the buildings and common areas.

If the owners (or people living in the complex) have a disagreement, the body corporate will sort it out.

Some people like this approach. It means they can own a property and not have to worry about external maintenance.

But body corporate fees can be expensive. Levies can range from $2,500 to $6,000 per year (or more). It depends on the type of apartment building.

If there are pools and gyms, then the fees will be more expensive.

While a pool and a gym are nice-to-haves, you pay for the privilege of sharing them with your neighbours.

Body corporates can also set rules you disagree with, so you don’t have the same control as you would with a fee-simple (freehold) title.

More from Opes:

• What is a freehold property? Pros and Cons (Article)
• Leasehold properties - What are the pros and cons? (Article)
• Townhouses vs houses vs apartments - Which goes up in value faster? (Article)

What is a Body Corporate?

A body corporate is a mandatory part of the Unit Titles Act 2010. All unit title (stratum in freehold) properties have a body corporate.

This happens automatically when the developer submits plans for a New Build.

The Body Corp committee is responsible for managing shared areas and keeping the building maintained.

All unit title owners are automatically members of the body corporate. It’s compulsory, and they must pay levies that cover costs like insurance and repairs.

These levies usually range from $2,500 to $6,000 a year (or more).

The amount you pay depends on:

• the size of the apartment
• the number of car parks you have, and
• what’s in the building (e.g. pools and elevators)

But they can be higher in older buildings that need more maintenance.

Body corporate vs residents’ association – what’s the difference?

All unit title properties have a body corporate, but not all properties with shared areas are unit titles.

For example, most townhouses have a fee simple title, but they still have shared areas. That’s where they often have a residents’ association instead.

You can also have a bunch of townhouses where everyone owns the land collectively. In that case, these properties would all be unit titles.

The key question to ask is: “Who owns the land?”

Unit title vs other types of ownership in New Zealand?

A unit title is one type of property ownership in New Zealand.

The other 3 main ones are:

Freehold or “fee simple”

This is the most common (and usually most simple) way to own a property. This is because you own the land, and everything built on it. Any alterations you want to make are up to you – subject to council and building consent.

Leasehold

A leasehold ownership is when you buy and own the buildings on a property, but someone else owns the land. You pay ground rent to the land owner.

When you buy a leasehold property you have the right to own the land and the property for a set period on the lease.

Cross lease

This is where you and your neighbour jointly own the land underneath your two houses. You then lease the ground from each other. That’s why it’s called a cross lease.

Is a unit title a good investment?

A unit title can be a good investment, particularly for those trying to enter the property market at lower cost.

Apartments, which are often unit titles, can offer higher yields, but they typically don’t appreciate as quickly as standalone homes or townhouses.

But remember, not all unit titles are going to be apartments. It’s all to do with the ownership of the land. Some townhouses can be unit titles too.

If that’s the case, the name “unit title” shouldn’t put you off. But you’ll need to run your numbers to make sure it’s a worthwhile investment.