Sectional Title homes have seen some superior price growth performance compared with Full Title over the period 2012 to 2016. This is typical in better economic and housing market times for Sectional Title to outperform the slightly less cyclical Full Title category. Given recent market weakness that has set in though, it isn’t that clear whether this performance differential will continue in 2017, as both Full Title and Sectional Title segments see their house price growth slowing.
House Price Growth Slowdown is Broad-Based Across Segments
Although the FNB Sectional Title House Price Index remained at a slightly faster growth rate than Full Title, i.e. 4.9% year-on-year (from a multi-year high of 8% in the 3rd quarter of 2015) vs Full Title’s growth of 2.81% (from a multi-year high of 6.7% in the final quarter of 2015), both house price indices were experiencing slowing growth.
Whilst FNB hasn’t seen a narrowing in the price inflation differential between Sectional Title and Full Title just yet, their panel of valuers appears to perceive the Sectional Title market to have been cooling off a little more significantly than the Full Title Market.
This perception is reflected in a narrowing of the gap in the FNB Valuers Market Strength Indices (MSI) for Full Title vs Sectional Title, although at 51.3 the Sectional Title MSI remains slightly above the 50.93 for the Full Title MSI.
When FNB measures year-on-year growth of the MSI, they see a more significant slowing, from a higher growth rate back early in 2014, in the MSI for Sectional Title compared to the MSI for Full Title.
Examining Deeds data transaction volumes for individuals split by Sectional vs Full Title, indeed FNB saw that in 2016 the Sectional Title volumes did not consistently outgrow Full Title volumes, whereas from 2012 to 2015 they had. In 2 out of the 1st 3 quarters of 2016 Full Title volume growth was actually higher than that of Sectional Title.
Sectional Title Sub-Segment Performances
Within the Sectional Title segment, “smaller was still better” in the final quarter of 2016 when one compares the relative strength of the various sub-segments, although all sub-segments have been slowing and the performance gap between the segments has been narrowing.
The smallest sized Sectional Title sub-segment, namely the “Less than 2 Bedroom” segment, still showed the strongest price inflation to the tune of 6.4% in the 4th quarter of 2016. Then came the 2 Bedroom sub-segment with 5.2% price growth, while the largest “3 Bedroom and More” category was the slowest sub-segment with 4.9% average price growth.
All 3 of these sub-segments showed slowing price growth from prior quarters, but the “Less than 2 Bedroom” segment had shown the most significant slowing all the way from a high of 15.2% year-on-year at the end of 2015.
This “Less than 2 Bedroom” sub-segment is believed to be a key target of the highly-cyclical 1st time buyers. After benefiting heavily from a strong 1st time buyer period through 2011 to 2014, when 1st time buyers peaked at an estimated 28% of total buying early in 2014, this segment has now fallen on tougher times, as the estimated first time buyer percentage has receded to nearer to 20% (according to the FNB Estate Agent Survey).
Full Title Sub-Segment Performances
In the Full Title segment, performance gaps have narrowed to insignificant margins.
The smallest sub-segment, i.e. the “2 Bedrooms and Less” category, showed price inflation to the tune of 2.5% year-on-year in the 4th quarter of 2016. The 3 bedroom segment with 2.3% was the slowest, while the largest “4 Bedroom and More” segment, in recent times normally the slowest, showed slightly higher price growth of 3.2%.
However, these price inflation performance differences are insignificant, and all 3 of these sub-segments under perform the 3 major Sectional Title sub-segments still. Taking a simple percentage differential between the average Full Title house price and that of Sectional Title, the out performance of Sectional Title in recent years has reduced the gap by which the average Full Title house price exceeds that of the smaller-sized Sectional Title category, from 27% as at the end of 2011 to 21.6% by the end of 2016.
In short, the Sectional Title Segment is typically more cyclical than the Full Title Market. This means that in tougher economic and interest rate times it can weaken a bit more significantly then the Full Title Market, but in relatively good times can perform a little better, as it has done in recent years of relatively good market conditions up until not too long ago.
Both segments continued to soften late in 2016, but to date certain of the key performance indicators still put Sectional Title as mildly stronger than the Full Title Segment. The FNB Valuers perceive more of a slowing in Sectional Title than in Full Title, but this has not yet fed through into relative house price inflation performance differentials, so for the time being Sectional Title house price growth remains slightly ahead of Full Title.