The Sectional Title Home Market still shows mildly superior average house price growth compared to the Full Title Market, but the price growth gap between the 2 segments has diminished, with both segments’ year-on-year price growth picking up mildly through 2017.
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 5.18% year-on-year in the fourth quarter of 2017, having accelerated from 4.96% in the first quarter of the year.
The Full Title House Price Index, by comparison, showed a slower 3.95% year-on-year growth rate in the fourth quarter of 2017. However, its growth had accelerated a little more over the year than the Sectional Title Index, from a lowly 3.18% year-on-year in the first quarter of 2017.
The panel of FNB valuers also perceived the Sectional Title market to be stronger than the Full Title market in the fourth quarter of 2017.
Sectional title sub-segment performances
Within the Sectional Title segment, “smaller was still better” in the fourth quarter of 2017 when one compares the relative strength of the various sub-segments’ price growth.
The smallest sized Sectional Title sub-segment, namely the “Less than 2 Bedroom” segment, showed the strongest price inflation to the tune of 7.3% in the fourth quarter of 2017. Then came the 2 Bedroom sub-segment with 6.4% price growth, while the largest “3 Bedroom and More” category was the slowest sub-segment with 3.6% average price growth.
However, it was the 2 Bedroom Sub-Segment that was the only one of the three to be showing house price growth acceleration through 2017, from 4.9% in the final quarter of 2016 to 6.4% by the end of 2017, the other two sub-segments showing slowing price growth through the year.
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 4.2% year-on-year in the fourth quarter of 2017.
The relatively expensive 4 Bedroom and More Full Title Segment saw a slower growth rate of 3.7%, while the smallest sized 2 Bedroom-and-Less segment was the weakest with 3.3%.
Average price gap between full title and sectional title markets continues to narrow
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 26.6% as at the end of 2013 to 22.2% by the fourth quarter of 2017.
Long term performances of major housing market segments
In a 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 cumulative out performers since the beginning of 2001 around the time when the data series’ started. This is hardly surprising, given the mounting scarcity of available urban land and infrastructure (including scarcity of new transport infrastructure, which limits urban sprawl potential) for new residential development.
Top performer has been the Sectional Title Less than 2 Bedroom Segment, with cumulative average price inflation of 496.89% from the first quarter of 2001 to the fourth quarter of 2017.
This far outstrips the second placed Sectional Title 2 Bedroom Segment’s 376.36% and the Sectional Title 3 Bedroom and More Segment’s 352.98%. The 3 Full Title Segments have “under performed”, the more popular 3 Bedroom Segment’s 331.41% neck and neck with the 4 Bedroom and More Segment’s 336.71%, but outstripping the far more affordable 2 Bedrooms and Less Segment’s 284.46%.
The FNB Valuers perceive the Sectional Title market to be stronger than that of Full Title, and superior average house price growth in the Sectional Title market appears to reflect this. However, the year-on-year price growth rates in both Sectional and Full Title segments accelerated as 2017 progressed, the latter’s growth accelerating more than the former off a lower base.
The pattern of smaller-sized unit segments outperforming the larger ones is becoming less clear as of late, however. In the Full Title Segment, the smallest average sized segment, the “2-Bedroon and Less” segment has recently shown the slowest growth in the main Full Title sub-segments, while in the Sectional Title segment it is the mid-sized 2-Bedroom sub-segment which has been the only one recently showing average house price growth acceleration.
It may be that, after some years of smaller sized sub-segments outperforming the larger ones in terms of price growth, larger sized home now begin to offer relatively better value for money, which could mean that in 2018 we don’t smaller segments clearly outperforming on price growth.
Read more here: FNB Property Barometer – House Prices by Segment – February 2018