Property Titles and Real Estate Investing

There are varying types of ownership in regards to Australian real estate, however the most common by far is freehold ownership. The others include leasehold ownership which has a finit limit and crown land where the commonwealth/state has the power to sell, lease or dispose of land. For the purpose of this article however we are focused on title specifics associated with freehold ownership.

When investing in property you need to not only determine the type of property you want but also the title arrangements you are willing to consider, as these will have investing implications and enforce certain responsibilities on you as the owner.

Property titles are a maintained by a state/territory based real estate registry which retains a public repository of information on real estate tenure. Property titles are also subject to state-based law which results in varying rules and requirements however all should include title information and details of registered interests impacting the property such as covenants, registered easements, leases and mortgages. This is why when buying a property it is essential to conduct a title search in order to ensure you are contracting with a vendor who is the registered proprietor, as well as the existence of other encumbrances that may impact your ownership and property development goals.

The most common type of titles you may encounter are:

Torrens Title

The Torrens system is how land registration is now operated within Australia, where by title to real estate is created by the act of registration. As a result when the sale of a property under the Torren system occurs, the buyer is granted legal title on registration of the transfer.

Property under a Torrens title effectively grants the owner full rights within the boundaries of the land, however this is still subject to state laws e.g. easements within the property where state bodies have legal access rights etc. Torrens title properties are also typically subject to rates and potentially land tax.

Old System Title (‘general law’ land)

This was the previous system of land title, where title was established by looking at a chain of transactions and events dating back to the original owner (“root of title”). Whilst most properties previously existing under this title have been converted to Torrens Title, or will be on sale of the property, extra due diligence should be undertaken to ensure the vendor has unfettered ownership.

Strata Title

This title is generally applicable to property types such as units, serviced apartments, villas and townhouses. The title recognises that the property may have areas in common and as such is granted ownership of a ‘unit’ of the larger complex and membership in the body corporate (there is a legal obligation for a body corporate to exist). Due to the nature of properties under a Strata Title there are additional obligations that need to be met by owners such as payment of a strata levy which covers maintenance costs of the common areas as well as a sinking fund for future re/developments. Most Body corporates will also establish their own set of by-laws, with one topic that has been in the press of late being the banning of smoking within apartment complexes.

Community Title

Typically this title is a result of a subdivision where property owners receive a Torrens Title for their property lot, but also become members of a body corporate where they share in ownership of common facilities and typically subject to some form of levy for upkeep.

Company Title

This is an older form of title where owners are shareholders in a private company, therefore you actually have shares as opposed to a property title. Being a shareholder you are entitled to exclusive occupation/possession of the property however should you wish to sell, lease or transfer your shareholding approval is required by the company (or majority of shareholders).

This title type imposes quite a few challenges for a property owner.

 

Each property type and title will have their own merits however the key is to know as much information about your particular investment as possible to place yourself in a position of control and also less stress. For example investing in a Strata title property may mean you are more subject to financial movements as a result of purchases/sales by other neighbouring tenants, however you may also find if the property under the body corporate has a particularly healthy sinking fund that strata levies are relatively low. When investigating a potential investment it is also important to keep in mind your future goals for the property and ensure the property title e.g. is the land able to subdivided, or are there any covenants on the title that would restrict the development of a granny flat.

Your Buyers agent will not only be able to guide you with the above potential investment questions but also steer you in the right direction of qualified professionals that can assist in your due diligence process around areas such as title search etc.

About the Author: David is an avid web, finance and property geek who decided to combine these interests and found BAG in his spare time. If you have thoughts, issues or questions you can find him at LinkedIn, Google+ or alternatively drop him an email david at buyersagentguide.com.au

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