The Sectional Title Home Market appears to still be keeping its nose slightly ahead of the Full Title Market in terms of average house price growth, although both segments’ rates of increase remain moderate.
This, FNB believes, remains driven by a financially constrained Household Sector in tough economic times, with Sectional Title being on average cheaper from an operating cost point of view, along with a longer term need for more efficient land use and population densification driving greater demand for Sectional Title units.
Long term performances of major housing market segments
In a quick view of the long term performance of the major FNB Segment House Price Indices, the smaller sized Sectional Title homes with their more efficient use of land have clearly been the out performers since the beginning of 2001 around the time when the data series’ started. The period since then has spanned through South Africa’s biggest housing boom on record, the Global Financial Crisis around 2008, and the period of “normality” that followed.
Top performer has been the Sectional Title Less than 2 Bedroom Segment, with cumulative average price inflation of 479% from the first quarter of 2001 to the second quarter of 2017.
This far outstrips the second placed Sectional Title 2 Bedroom Segment’s 366% and the Sectional Title 3 Bedroom and More Segment’s 363%. The three Full Title Segments have lagged, the more popular three Bedroom Segment’s 324% mildly outstripping the more “outdated” and expensive four Bedroom and More Segment’s 315% and the far more affordable two Bedrooms and Less Segment’s 260%.
Recent house price performances of sectional vs. full title
The FNB Sectional Title House Price Index has remained at a faster growth rate than Full Title of late. The Sectional Title House Price Index rose by 5.35% year-on-year in the second quarter of 2017, slightly higher than the 5.2% rate of the previous quarter but still well-below the multi-year high of 8.05% in the third quarter of 2015. The Full Title House Price Index, by comparison, showed a slower 3.4% year-on-year growth rate in the second quarter of 2017, down from a 7.4% multi-year high rate at the beginning of 2014.
The panel of FNB valuers also perceives the Sectional Title market to still be stronger than the Full Title market, and actually saw some very slight quarter-on-quarter strengthening in the Sectional Title Segment in the second quarter.
This perception is reflected in our FNB Valuers Market Strength Indices (MSI) for Full Title and Sectional Title, with the Sectional Title MSI at a level of 51.22, and the Full Title MSI on 50.42
Note: FNB Valuers’ Market Strength Index (MSI) explanatory notes on page 4.
Sectional title sub-segment performances
Within the Sectional Title segment, “smaller was still better” in the second quarter of 2017 when one compares the relative strength of the various sub-segments.
The smallest sized Sectional Title sub-segment, namely the “Less than two Bedroom” segment, showed the strongest price inflation to the tune of 11.5% in the second quarter of 2017. Then came the two Bedroom sub-segment with 6% price growth, while the largest “three Bedroom and More” category was the slowest sub-segment with 3.6% average price growth.
This “Less than 2 Bedroom” sub-segment is believed to be a key target of the highly-cyclical 1st time buyers. There had been a mild dip in the rate of 1st time buying through 2015 to mid-2016, but more recently we have seen some partial recovery.
According to the FNB Estate Agent Survey, first time buyers peaked at an estimated 28% of total buying early in 2014. This estimated percentage then declined to a low of 18% in the third quarter of 2016, before showing a renewed rise to 21.41 % by the second quarter of 2017. The rate of first time buying has been particularly solid in Gauteng’s Metros in recent times. This partial recovery in 1st time buying may have fueled some partial recovery in the smaller sized Sectional Title properties, with the Less than two Bedroom Segment’s price inflation having risen from 9.7% year-on-year in the third quarter of 2016 to 11.5% by the second quarter of 2017 after a prior dip.
Full title sub-segment performances
In the Full Title segment, the popular three Bedroom segment has shown the highest average price growth of the three sub-segments, to the tune of 4.6% year-on-year in the second quarter of 2017.
Interestingly, perhaps, this rate of inflation is slightly faster than the three Bedroom and More Sectional Title Segment’s 3.6%.
The relatively expensive four Bedroom and More Full Title Segment has seen its average price growth stagnate to 1.1%.
And in the smaller sized two Bedroom and Less Full Title Segment, downward pressure on price growth has also been witnessed, the year-on-year rate having slowed to 1.8% in the second quarter. This slowing may point to mounting financial constraints in the so-called Affordable Housing Market, given that its relatively low average house price of R612,217 places a significant portion of these homes in the “Affordable” Segment.
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 a revised 27.6% as at the end of 2011 to 21.4% by the second quarter of 2017.
In short, both in the longer term as well as recently, the Sectional Title Segment’s price growth performance remains ahead of the less land efficient Full Title Segment. Within the Sectional Title Segment, it is the Less than two Bedroom Segment that remains the out performer. This FNB believes is a key first time buyer target, and first time buying has managed to hold up reasonably well despite tougher economic times, according to the FNB Estate Agent Surveys of late.
Over the past sixteen and a half years, the top performing segment in terms of house price growth was the Sectional Title Less than two Bedroom Segment by a significant margin.