Juice Worth the Squeeze? Townhouse Investment in SA
Some investors avoid townhouses because of levies they don't control, rules set by a body corporate, and the risk of special levies. Others like them because a well-run complex with healthy reserves is a predictable, easy-to-let rental. The answer depends on the scheme's finances, its rules and the numbers.
Three reasons some investors won't touch townhouses. And one reason they might be wrong.
You'll hear both sides argued loudly. Here's the balanced version, from somebody who has owned both kinds.
Is a townhouse a good investment in South Africa?
It can be. It can also be the property that costs you money every month.
The difference isn't the word "townhouse". It's the scheme the unit sits in, the price you paid and the rent it actually achieves.
Reason 1: The levy
Most townhouse complexes are sectional title schemes or sit under a homeowners' association. Either way, you pay a monthly levy.
You don't set it. You can't shop around for it. It goes up most years, whether your rent does or not.
On a lower-priced unit, the levy can take a meaningful share of the rent before you've paid a cent of the bond. I've worked through the arithmetic in sectional title levies: what they do to your yield.
Step one is the company. The Directors Fortress gives you the blueprint and the investor-friendly offer to purchase. R99 once off. Start here → zahomes.co.za/start-here
Reason 2: The rules
When you buy into a complex, you buy into its rules.
- Can you let the unit short-term? Some schemes ban it.
- Can the tenant keep pets?
- Can you renovate, add a carport or change the exterior?
- How many people may live in a unit?
- Are there restrictions on parking, noise or running a business?
Those rules are made by the owners collectively, at meetings, by vote. You get one voice among many. If your investment plan depends on something the rules forbid, the plan is dead.
Reason 3: Special levies
When a complex needs a big repair and the reserve fund can't cover it, the owners get a special levy. A new roof. Repainting. Fixing the boundary wall.
It's a one-off bill, sometimes a large one, and it's due whatever your cash flow looks like that month.
And the reason they might be wrong?
A well-run complex with healthy reserves can be the most boring, predictable rental you own.
- Security sells. Tenants pay for a gate and a guard, and they stay.
- Less of the maintenance is yours. Roofs, exteriors and gardens are usually the scheme's job.
- Lower entry price than a freestanding house in the same area.
- Easy to let. A two-bedroom unit in a secure complex near transport and schools has a deep pool of tenants.
- Insurance on the building is typically handled by the body corporate.
Boring is good. Boring pays the bond.
What should you check before you buy a townhouse?
Five things.
- The levy, and its history. Twelve months of statements.
- The reserve fund. Is it funded against the maintenance plan?
- The AGM minutes. Disputes, arrears and planned projects show up here.
- The conduct rules. Read them against what you intend to do.
- How many units are rented versus owner-occupied. A complex that's mostly tenants can be run differently from one that's mostly owners. Some banks also look at this.
Then walk around. Are the gardens kept? Is the paint peeling? Is the gate working? A complex shows you how it's managed if you look.
Townhouse or freestanding house?
Wrong question. Ask these three:
- Do the numbers work after every cost, levy included?
- Do the rules allow what I plan to do?
- Whose name am I signing in?
A freestanding house gives you control and all the maintenance. A townhouse gives you less of both. Neither is better. They suit different plans.
The catches
- You can't fix a badly run scheme on your own. You're one vote.
- Levies and special levies are outside your control.
- Resale competes with identical units in the same complex.
- Rules change. A new set of trustees can tighten them.
- Nothing here is about a specific complex. Judge each on its own documents.
Where the company fits
The question is never just townhouse or house. It's the numbers, the rules, and whose name you sign in.
The first two are about the property. The third is about you, and it's the one that decides whether this unit helps or blocks the next purchase. Strategies, areas and property types get a full section in The Vault. Start with the container first.
FAQ
Are townhouses a good investment in South Africa?
They can be, in a well-run scheme at the right price. Check the levy, the reserve fund and the rules before buying.
Why do some investors avoid townhouses?
Mainly levies they can't control, body corporate rules that limit what they can do, and the risk of special levies.
Do townhouses appreciate less than houses?
It varies by area and by scheme. There's no rule. Compare recent sales of similar properties nearby.
Can I rent out my townhouse on short-term platforms?
Only if the scheme's rules allow it. Many restrict or prohibit short-term letting.
Can a company own a sectional title unit?
Yes. A company can own a unit and is bound by the same levies and rules as any owner.
Related reading
- Sectional Title Levies: What They Do to Your Yield
- 4 Properties I Won't Buy in South Africa
- 3 numbers to check before you buy a rental
Build the wall first
The Directors Fortress gives you the investor-friendly offer to purchase, the blueprint for registering the entity, and a walkthrough of the structure I use. R99 once off, yours to keep.
Get started → zahomes.co.za/start-here
This article is general information, not tax, legal or financial advice. Speak to a registered tax practitioner, attorney or financial adviser about your own situation.
Sources
- Sectional Titles Schemes Management Act 8 of 2011
- Community Schemes Ombud Service: csos.org.za
About the author
Michael Bowen is the co-founder of ZAHomes. He has invested in property for over 20 years, in South Africa and abroad, and teaches investors how to buy and hold property inside a company. His philosophy: an investor's greatest assets are the lessons from their failed deals.
