The Sectional Title Home Market appears to be opening up a wider gap in terms of the house price inflation differential between itself and that of the Full Title Home Market and from around 2011, the Sectional Title Market has resumed its upward march towards a greater share of total market in terms of transactions volumes, a longer term trend which FNB believes may ultimately see this sector become the larger of the two Residential Market segments some years from now.
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 5.27% year-on-year in the third quarter of 2017, faster than the 5.1% rate of the previous quarter although still -below the multi-year high of 7.6% that was reached in the third quarter of 2015. The Full Title House Price Index, by comparison, showed a slower 2.95% year-on-year growth rate in the third quarter of 2017, down from a 7.2% multi-year high rate at the beginning of 2014.
The panel of FNB valuers also perceived the Sectional Title market to be stronger than the Full Title market in the third quarter of 2017.
Sectional title sub-segment performances
Within the Sectional Title segment, “smaller was still better” in the third 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 2 Bedroom” segment, showed the strongest price inflation to the tune of 9.3% in the third quarter of 2017. Then came the 2 Bedroom sub-segment with 5,3% price growth, while the largest “3 Bedroom and More” category was the slowest sub-segment with 4.6% average price growth.
This “Less than 2 Bedroom” sub-segment is believed to be a key target of the highly-cyclical first time buyers, and apart from low first time buyer levels in Cape Town, the major regions of SA still have reasonably strong 1st time buyer levels according to the FNB Estate Agent Survey.
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 3.7% year-on-year in the third quarter of 2017.
The relatively expensive four Bedroom and More Full Title Segment saw a more stagnant average price growth of 2.0%, very similar to the Full Title two Bedroom-and-Less segment’s 2.1%.
Average price gap between full title and sectional title markets continue to narrow
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 26.7% as at the end of 2013 to 21.6% by the third quarter of 2017.
Long term performances of major housing market segments
In a view of the long term performance of our major FNB Segment House Price Indices, the smaller sized Sectional Title homes with their more efficient use of land have clearly been the cumulative outperformers 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 494.57% from the first quarter of 2001 to the third quarter of 2017.
This far outstrips the second placed Sectional Title 2 Bedroom Segment’s 366.5% and the Sectional Title 3 Bedroom and More Segment’s 353.45%. The 3 Full Title Segments have “under performed”, the more popular three Bedroom Segment’s 326.6% neck and neck with the four Bedroom and More Segment’s 329.36%, but outstripping the far more affordable two Bedrooms and Less Segment’s 277.71%.
In short, the FNB Valuers perceive the Sectional Title market to be stronger than that of Full Title, and mildly superior average house price growth in the Sectional Title market appears to reflect this. On top of this, Sectional Title transactions volumes continue to grow faster than those of Full Title, thus gradually increasing the Sectional Title market’s share of the total residential market. In the third quarter of 2010, after some decline through the 2008/9 recession, Sectional Title transactions accounted for an estimated 23.6% of total property transactions by individuals (“Natural Persons”). This share had since risen to 30.7% by early-2017.
FNB remains of the belief that the Sectional Title market is on a long term path to having a far greater share of the total residential market. Sectional Title makes far more efficient use of what is increasingly scarce urban land. In addition, household costs are contained through joint funding of communal areas and infrastructure within a Sectional Title “complex”.
Read more here: FNB Property Barometer House Prices by Segment – October 2017