Freehold vs strata title: a comparison for homebuyers

Let's start at the beginning. A property 'title' is essentially a legal document that records specific information about the property, including who owns it.

When Australia's land was carved up upon British settlement, authorities began the process of registering titles of properties. Land registries are now administered by state and territory governments.

There are several different types of titles but the main two you'll encounter in your homebuying journey are freehold and strata titles.

Here's what they are and how they differ from one another.

What is a freehold title?

A freehold title is the most common type of property title in Australia (except in Canberra, but more on that later).

In Australia, you might also hear freehold titles referred to as 'Torrens titles'. They're essentially the same thing, just with the name of Robert Richard Torrens, the main architect of the current title system in the 1800s, attached.

Most houses have a freehold title. This means you, the property owner, own both the house and the land it's built on and have complete control over its use.

You can own it for as long as you wish, sell it, lease it, or mortgage it without restriction (as long as your actions don't breach local planning or environmental regulations).

You can also bequeath it to whoever you wish when the time comes.

But there are still a couple of limitations a person who owns a freehold title might face.

If your house is perched above an oil, gas, or other mineral wealth, Australia's so-called 'mineral rights' mean that the government will owns those resources (that'd be right). But landowners are entitled to compensation in such situations.

Am I the owner of a freehold property if I have a mortgage?

Yes, you are still the owner of any freehold property you purchase, even if you buy it with a loan.

If you buy a freehold property with a mortgage, your lender will keep hold of the title deed of your property until your mortgage has been paid off. It will then hand it over to you - for a fee of course.

If you have a mortgage, you can make most decisions about the property independently.

However, if you find yourself making decisions that could significantly impact the value of the property, such as knocking down the house to rebuild or undertaking major renovations that will alter the structure of the dwelling, you will likely need to get permission from your lender.

After all, a lender has a vested interest the property's value, as it will want to ensure it can recoup the funds you owe should you fall behind in your repayments. It will need to do its own due diligence on any major plans before granting you permission to proceed, even if the work you have in mind could be expected to grow the property's value.

See also: How much does it cost to knock down and rebuild?

What is a strata title?

You're more likely to come across strata titles if you're buying an apartment or unit.

A strata title essentially means you have ownership of the individual apartment or unit you purchase (called a 'lot'), but not the building or the land it sits on.

You also have shared ownership of communal spaces, such as grounds, hallways, elevators, or pools, which are called, in legal terms, 'common property'.

These are managed by a separate legal entity, usually a 'body corporate', but also sometimes referred to as an 'owners' corporation' or 'strata company'.

What are body corporate fees?

If you buy a property with a strata title, you will generally pay fees to the body corporate for the upkeep and management of the shared spaces and the building - or buildings - themselves. These fees also tend to cover the cost of insuring property not included in 'lots', meaning you might only need contents insurance, not building insurance, if you have a strata title.

What are sinking funds?

Strata properties in Australia also commonly have sinking funds, which are pools of cash set aside to cover the cost of non-routine maintenance and repairs. If the sinking fund becomes depleted or an upcoming expense threatens to exhaust it, the owners of the dwellings may be required to contribute additional funds to replenish it. This ensures that the property can be properly maintained and any significant repairs can be funded in the future.

What restrictions can a body corporate put on the use of strata title properties?

As a strata title holder, you still have the right to do what you wish with your own property, such as lease it out or renovate it internally (sometimes subject to approval), but there will likely be restrictions on what else you can do according to the rules of the body corporate.

A body corporate may even restrict what you can do in your own property, such as policing smoking on balconies, limiting the type and number of pets you can keep, the style of window dressings you can install, or even barring owners from hanging washing in view of the street.

See also: What you should know when buying a strata property

Freehold vs strata title: Compare the pair

Feature	Freehold title	Strata title
Ownership	Owner owns land and building	Owner owns the individual unit only
Control	Complete control over property	Subject to body corporate rules
Purchase cost	Generally higher	Generally lower
Maintenance responsibilities	Owner responsible for all upkeep	Shared maintenance via body corporate fees
Restrictions	Minimal, governed by local laws	Subject to body corporate bylaws
Common areas	None	Shared ownership of common areas

Is a freehold title better than a strata title, or vice versa?

So, is it better to buy a freehold or a strata property? The answer to that question will depend on your own individual needs and circumstances. Let's run through a few considerations:

Cost vs value

From an investment point of view, freehold properties typically appreciate more in value over time. But they are generally more expensive to purchase as well.

Apartments or units can be cheaper to buy but come with ongoing contributions to the body corporate for maintenance and, potentially, the sinking fund.

You can have some say in how these funds are spent by getting involved with the body corporate but, ultimately, you might see yourself paying for maintenance of facilities you don't use.

See also: Understanding the role of strata committees in Australia

On the other hand, shared facilities, such as gyms, pools, or barbecue areas, can give strata titleholders access to maintained spaces they may not be able to afford themselves.

Restrictions

In a freehold property, you are literally king or queen of your own castle (within legal boundaries anyway). You call the shots and make the decisions on how what you will do with your property.

In a strata situation, you are bound by the by-laws of the body corporate. Even work you do within your own apartment or unit would generally need to be approved if tradespeople or materials need to use common areas to access your property.

You also need to comply with by-laws regarding tenants, the type of lease that's permitted should you choose to rent out your property, noise, use of shared facilities, car parking, social gatherings, pet ownership, and many other considerations.

Maintenance costs

In a freehold property, you are liable for all maintenance costs yourself. It's as simple as that.

In a strata property, such burdens are shared and you generally don't have to do any maintenance yourself (except within your own apartment or unit, or course).

Some people prefer the simplified, low-maintenance lifestyle that a strata property can offer, while others don't mind carrying out maintenance work themselves. This comes down to personal preference.

Security

Some homebuyers may feel more secure in a strata arrangement, due to the increased level of security they can generally offer. Many modern strata properties come with security systems and restrict access to people who don't live in the complex.

The majority of freehold properties, on the other hand, tend to be standalone houses which can be more vulnerable from a security point of view.

Community

Community (or lack thereof) can be a double-edged sword.

Freehold properties are autonomous and while they typically come with neighbours, there are also generally fences to keep some distance from them.

In strata properties, on the other hand, you will share many facilities with your neighbours. This can foster a sense of community, but it can also be the source of hostilities.

Again, living in closer proximity with other people comes down to personal preference.

What property title will you receive if you purchase in Canberra?

They do things a little differently in Canberra, and it's no different when it comes to transacting in property.

If you're looking to buy a home in the Australian Capital Territory (ACT), it's important to understand you won't be buying or owning the land the home sits on.

All land in the ACT is owned by the Commonwealth and is leased to property owners. This is called a 'Crown lease'. So, if you purchase in Canberra, you will be a 'lessee', not a title holder.

But, in practice, the outcome isn't all that much different to how things operate in the rest of the country. Under the terms and conditions of the lease system, home buyers in the ACT enjoy the exclusive use of the land during the term of their Crown lease.

Crown leases for residential land generally last 99 years, but the term doesn't reset each time the property changes hands. You just get what's left on the lease at the time you buy.

When it does expire, the homeowner can apply for a renewal of the lease. This will generally be granted unless the ACT or the Commonwealth requires the land for any particular reason.

Buying a home

If you're looking to purchase a home, the table below has some of the lowest interest rates on the market for owner occupiers.

Important Information and Comparison Rate Warning

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