Sectional Title homes have seen some mildly superior price growth performance compared with Full Title over the period 2012 to early-2016. This FNB believes to be reflective of a financially constrained household sector, along with significant affordability deterioration in recent years when it comes to certain home-related costs, notably municipal rates and utilities tariffs whose inflation rate has outpaced broader consumer price inflation. The result is a search for affordability in terms of running costs, and Sectional Title homes can often provide such affordability to a greater extent than Full Title homes.
Relative house price performances of sectional title vs. full title
Although the FNB Sectional Title House Price Index remained at a slightly faster growth rate than Full Title, i.e. 4.4% year-on-year in the 1st quarter of 2017 (from a multi-year high of 8% in the 3rd quarter of 2015) vs Full Title’s growth of 2.4% (from a multi-year high of 6.7% in the 3rd quarter of 2015), both house price indices were experiencing slowing growth.
The panel of FNB valuers also perceives the Sectional Title market to still be stronger than the Full Title market, although they too see it as having cooled off.
This perception is reflected in a recent decline in our FNB Valuers Market Strength Indices (MSI) for both Full Title and Sectional Title, but where at 50.91 the Sectional Title MSI remains slightly above the 50.63 for the Full Title MSI.
Examining Deeds data transaction volumes for individuals split by Sectional vs Full Title, FNB has seen Sectional Title volumes growth outperform that of Full Title for most of the time from 2012 to end-2016, although both segments have seen recent year-on-year decline in volumes.
Transaction volume growth-wise too, therefore, Sectional Title appears to have outperformed Full Title since around 2012.
As at the final quarter of 2016, FNB estimated Sectional Title property transactions registered by individuals to be in year-on-year decline to the tune of -5.17%, while those of Full Title were declining by a more significant -8.52%.
Sectional title sub-segment performances
Within the Sectional Title segment, “smaller was still better” in the 1st quarter of 2017 when one compares the relative strength of the various sub-segments, although all sub-segments have been slowing.
The smallest sized Sectional Title sub-segment, namely the “Less than 2 Bedroom” segment, still showed the strongest price inflation to the tune of 7.7% in the 1st quarter of 2017. Then came the 2 Bedroom sub-segment with 4.8% price growth, while the largest “3 Bedroom and More” category was the slowest sub-segment with 3.7% average price growth.
This “Less than 2 Bedroom” sub-segment is believed to be a key target of the highly-cyclical first time buyers. After benefiting heavily from a strong first time buyer period through 2011 to 2014, when first time buyers peaked at an estimated 28% of total buying early in 2014, this segment has now fallen on mildly tougher times, as the estimated 1st time buyer percentage has receded to nearer to 20% (21% in the 1st quarter of 2017 according to the FNB Estate Agent Survey). However, such first time buyer levels remain “respectable” compared to the 12% low back around the recession of 2008/9.
Full title sub-segment performances
In the Full Title segment, performance gaps have narrowed to insignificant margins, and the “smaller is better” adage doesn’t clearly hold true in this segment.
The smallest sub-segment, i.e. the “2 Bedrooms and Less” category, showed the slowest price inflation to the tune of 1.5% year-on-year in the 1st quarter of 2017.
The 3 bedroom segment with 2.6% was the fastest, while the largest “4 Bedroom and More” segment, was in the middle with 1.9% year-on-year price growth.
These price inflation performance differences are insignificant, and all 3 of these sub-segments underperform 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 outperformance 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 a revised 27.6% as at the end of 2011 to 21.6% by the 1st quarter of 2017.
In short, ongoing above-inflation municipal rates and tariff increases, tough economic and financial times, and rising personal tax rates, pose financial challenges to the Household Sector. This environment plays into the hands, relatively speaking, of the (on average) smaller sized Sectional Title market segment where home running costs can often be better contained than in the case of larger-sized Full Title properties with their individual stands.
Therefore, although both segments softened through 2016 and into early in 2017, Sectional Title remained mildly stronger over this period than the Full Title Segment.