Property Talk

The comparison between sectional title and freehold home opportunities is something that becomes increasingly important when considering property as an investment asset class. In general sectional title opportunities are smaller, more densely located and therefore more affordable.

We often think that as soon as freehold properties compete head-on-head on price with sectional title properties, freehold properties are would or should typically be preferred and attract more demand. Is this however the case and what does the data reveal

It is interesting to consider the price indices since 2001 of different size sectional title properties in comparison to full title or freehold homes across a similar size range. This is what FNB have provided in their latest market segment report. The clear winner over this 16 year period has been the smaller, less than 2 bedroom in size, sectional title units with cumulative price growth of 479% from the 1st quarter of 2001 to the 2nd quarter of 2017. Next best were the 2 bedroom sectional title segment with 366% growth and then followed closely by the 3 bedroom and more sectional title segment with 363% growth. Within the freehold segment the popular 3 bedroom segment returned 324% growth. The more expensive 4 bedroom full title segment returned 315% growth and surprisingly the more affordable 2 bedroom full title homes returned the lowest at 260% growth over the period. This did surprise me and does indicate that sectional title even at the same size and price point can attract more demand.

If we aggregate all sectional title and compare this to an aggregated full title price growth index we see that the FNB Sectional Title House Price Index rose by 5.35% year-on-year in the 2nd quarter of 2017, slightly higher than the 5,2% from the 1st quarter but well below the recent peak of 8,05% in the 3rd quarter of 2015. By comparison the FNB Full Title house price index returned a more pedestrian 3,4% year-on-year growth in the 2nd quarter of 2017, which had peaked at 7,4% at the beginning of 2014. The FNB Valuers also rate the sectional title market as slightly stronger than the full title market with the data taken from all the valuations done across the two segments and compiled into a comparative index.

The obvious question to ask is who typically buys within the less than 2 bedroom sectional title segment These are very often the highly-cyclical 1st time buyers. If we consider first time buyers as a percentage of total buyers this figure peaked at 28% in early 2014, and then declined to a recent low of 18% in the 3rd quarter of 2016. This figure has recently improved to 21,41% by the 2nd quarter of 2017.

The above information is incredibly useful when considering investing in new off-plan sectional title developments and the choice of type and size is provided. The smaller less than 2 bedroom type opportunities have shown to outperform financially both over the short and longer term.