Property Talk

Would you choose to buy a sectional title or freehold property as an investment What size property would you buy, if money was no object and the primary objective was to get the best capital growth on your investment

The difference in price performance between sectional title apartments or townhouses and freehold properties is provided in FNB's recent analysis on the house price indices by market segment and provides some insight in answering these questions.

The sectional title market has grown from 23.6% of total property transactions by individuals in South Africa in 2010 to 30.7% in 2017. Currently the sectional title market is stronger than the full title market as perceived by the FNB Valuers and the relative price growth in the sectional title market appears to reflect this.

According to FNB the Sectional Title House Price Index rose by 5.27% year-on-year in the 3rd quarter of 2017. This was faster than the 5.1% rate of the previous quarter although below the multi-year high of 7.6% that was reached in the 3rd quarter of 2015. By comparison the Full Title House Price Index showed a slower 2.95% year-on-year growth rate in the 3rd quarter of 2017 down from a 7.2% multi-year high rate in 2014.

What is interesting is when we look at the sub-segment price performance according to the size of the property defined in terms of the number of bedrooms. The smallest sized Sectional Title sub-segment - the "Less than 2 Bedroom" segment, has shown the strongest price inflation by far, measured at 9.3% in the 3rd Quarter of 2017.

The 2 Bedroom sub-segment recorded 5.3% in price growth, while the "3 Bedroom and more" segment provided the lowest growth at 4.6%. It is therefore true that smaller is still better in terms of investment performance.

The "Less than 2 Bedroom" sub-segment is a favourite amongst property investors and the typically highly cyclical 1st time buyers. This is very interesting information when considering which type of property to invest in, when provided with a range of size choices in a new off-plan development.

Within the Full Title segment the 3 Bedroom segment has shown the highest average price growth with 3.7% year-on-year being recorded in the 3rd quarter of 2017. The more expensive "4 Bedroom or more" Full Title segment only recorded price growth of 2% and the "2 Bedroom of Less" Full Title segment

The top price performer has been the Sectional Title Less than 2 Bedroom segment, with cumulative average price inflation of 494.57% from the 1st quarter of 2001 to the 3rd quarter of 2017. This growth far outstrips the 2nd placed Sectional Title 2 Bedroom Segment's 366.5% and the Sectional Title 3 Bedroom and more segment's 353.45%. The best performing Full Title category over this longer period was the 4 Bedroom and more segment that returned 329.36%.