PROPERTY BAROMETER – House Price Indices by Segment The Sectional Title Housing Market Segment still mildly outperforms the Full Title Segment, but both segments have slowed through 2016 to early-2017 21 April 2017 Sectional Title homes have seen some mildly superior price growth performance compared with Full Title over the period 2012 to early-2016. This we believe 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 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 1 st quarter of 2017 (from a multi-year high of 8% in the 3 rd quarter of 2015) vs Full Title’s growth of 2.4% (from a multi-year high of 6.7% in the 3 rd quarter of 2015), both house price indices were experiencing slowing growth. Our 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. Note: FNB Valuers’ Market Strength Index (MSI) explanatory notes on page 4.
Transcript
PROPERTY BAROMETER – House Price Indices by Segment
The Sectional Title Housing Market Segment still mildly outperforms the Full Title
Segment, but both segments have slowed through 2016 to early-2017
21 April 2017
Sectional Title homes have seen some mildly superior price growth performance compared with Full Title
over the period 2012 to early-2016. This we believe 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 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.
Our 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.
Note: FNB Valuers’ Market Strength
Index (MSI) explanatory notes on page
4.
Examining Deeds data transaction
volumes for individuals split by Sectional
vs Full Title, we have 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, we
estimated Sectional Title property
transactions registered by individuals (“Natural Persons”) 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
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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.
CONCLUSION
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.
ADDENDUM - NOTES:
Key notes with regard to the FNB Segment House Price Indices by Title and Room Number:
• The Indices are constructed using transaction price data from homes financed by FNB.
• The minimum size cut-off for full title stands is 200 square metres, and the maximum size is 4000
square metres
• The maximum price cut-off is R10m, and the lower price cut-off is R20,000 (largely to eliminate
major outliers and glaring inputting errors).
• The indices are very lightly smoothed using a Hodrick-Prescott smoothing function with a Lambda
of 5.
Note on the FNB Valuers’ Market Strength Index: *When an FNB valuer values a property, he/she is
required to provide a rating of demand as well as supply for property in the specific area. The demand and
supply rating categories are a simple “good (100)”, “average (50)”, and “weak (0)”. From all of these ratings
we compile an aggregate demand and an aggregate supply rating, which are expressed on a scale of 0 to
100. After aggregating the individual demand and supply ratings, we subtract the aggregate supply rating
from the demand rating, add 100 to the difference, and divide by 2, so that the FNB Valuers’ Residential
Market Strength Index is also depicted on a scale of 0 to 100 with 50 being the point where supply and
demand are equal.
SEGMENT PERFORMANCES
• Sectional Title vs Full Title
• Full Title
• Sectional Title
• Sectional Title Per Square Metre
• Home Size Segments
50.30
53.10
50.65
35
40
45
50
55
60
65
2001 2003 2005 2007 2009 2011 2013 2015 2017
Ind
ex
Sc
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FNB Valuers Residential Market StrengthIndices - Sectional Title
