PROPERTY BAROMETER House Price Indices by Segment The Sectional Title Housing Market Segment still mildly outperforms the Full Title Segment, and the Less than 2 Bedroom Sectional Title Sub-Segment has been the outperformer both recently and over the past 16.5 years 18 July 2017 The Sectional Title Home Market appears to still be keeping its nose slightly ahead of the Full Title Market in terms of average house price growth, although both segments rates of increase remain moderate. This, we believe, remains driven by a financially constrained Household Sector in tough economic times, with Sectional Title being on average cheaper from an operating cost point of view, along with a longer term need for more efficient land use and population densification driving greater demand for Sectional Title units. LONG TERM PERFORMANCES OF MAJOR HOUSING MARKET SEGMENTS In a quick 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 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 479% from the 1 st quarter of 2001 to the 2 nd quarter of 2017. This far outstrips the 2 nd placed Sectional Title 2 Bedroom Segment s 366% and the Sectional Title 3 Bedroom and More Segment s 363%. The 3 Full Title Segments have lagged, the more popular 3 Bedroom Segment s 324% mildly outstripping the more outdated and expensive 4 Bedroom and More Segment s 315% and the far more affordable 2 Bedrooms and Less Segment s 260%. 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 5.35% year-on-year in the 2 nd quarter of 2017, slightly higher than the 5.2% rate of the previous quarter but still well-below the multi-year high of 8.05% in the 3 rd quarter of 2015. The Full Title House Price Index, by comparison, showed a slower 3.4% year-on-year growth rate in
the 2 nd quarter of 2017, down from a 7.4% multi-year high rate at the beginning of 2014. Our panel of FNB valuers also perceives the Sectional Title market to still be stronger than the Full Title market, and actually saw some very slight quarter-on-quarter strengthening in the Sectional Title Segment in the 2 nd quarter. This perception is reflected in our FNB Valuers Market Strength Indices (MSI) for Full Title and Sectional Title, with the Sectional Title MSI at a level of 51.22, and the Full Title MSI on 50.42 Note: FNB Valuers Market Strength Index (MSI) explanatory notes on page 4. SECTIONAL TITLE SUB-SEGMENT PERFORMANCES slowest sub-segment with 3.6% average price growth. Within the Sectional Title segment, smaller was still better in the 2 nd quarter of 2017 when one compares the relative strength of the various subsegments. The smallest sized Sectional Title subsegment, namely the Less than 2 Bedroom segment, showed the strongest price inflation to the tune of 11.5% in the 2 nd quarter of 2017. Then came the 2 Bedroom sub-segment with 6% price growth, while the largest 3 Bedroom and More category was the This Less than 2 Bedroom subsegment is believed to be a key target of the highly-cyclical 1 st time buyers. There had been a mild dip in the rate of 1 st time buying through 2015 to mid-2016, but more recently we have seen some partial recovery. According to the FNB Estate Agent Survey, 1 st time buyers peaked at an estimated 28% of total buying early in 2014. This estimated percentage then declined to a low of 18% in the 3 rd quarter of 2016, before showing a renewed rise to 21.41 % by the 2 nd quarter of 2017. The rate of 1 st time buying has been particularly solid in
Gauteng s Metros in recent times. This partial recovery in 1 st time buying may have fueled some partial recovery in the smaller sized Sectional Title properties, with the Less than 2 Bedroom Segment s price inflation having risen from 9.7% year-on-year in the 3 rd quarter of 2016 to 11.5% by the 2 nd quarter of 2017 after a prior dip. FULL TITLE SUB-SEGMENT PERFORMANCES In the Full Title segment, the popular 3 Bedroom segment has shown the highest average price growth of the 3 sub-segments, to the tune of 4.6% yearon-year in the 2 nd quarter of 2017. Interestingly, perhaps, this rate of inflation is slightly faster than the 3 Bedroom and More Sectional Title Segment s 3.6%. The relatively expensive 4 Bedroom and More Full Title Segment has seen its average price growth stagnate to 1.1%. And in the smaller sized 2 Bedroom and Less Full Title Segment, downward pressure on price growth has also been witnessed, the year-on-year rate having slowed to 1.8% in the 2 nd quarter. This slowing may point to mounting financial constraints in the so-called Affordable Housing Market, given that its relatively low average house price of R612,217 places a significant portion of these homes in the Affordable Segment. 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 21.4% by the 2 nd quarter of 2017. CONCLUSION In short, both in the longer term as well as recently, the Sectional Title Segment s price growth performance remains ahead of the less land efficient Full Title Segment. Within the Sectional Title Segment, it is the Less than 2 Bedroom Segment that remains the outperformer. This we believe is a key 1 st time buyer target, and 1 st time buying has managed to hold up reasonably well despite tougher economic times, according to the FNB Estate Agent Surveys of late. Over the past 16 and a half years, the top performing segment in terms of house price growth was the Sectional Title Less than 2 Bedroom Segment by a significant margin.
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. JOHN LOOS: HOUSEHOLD AND PROPERTY SECTOR STRATEGIST 087-328 0151 John.loos@fnb.co.za The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Firstrand Group Limited and / or the authors of the material. First National Bank a division of FirstRand Bank Limited. An Authorised Financial Services provider. Reg No. 1929/001225/06
SEGMENT PERFORMANCES Sectional Title vs Full Title Full Title
Sectional Title 65 FNB Valuers Residential Market Strength Indices - Sectional Title Index Scale 0 to 100 60 55 50 45 40 52.95 51.13 50.58 35 2001 2003 2005 2007 2009 2011 2013 2015 2017 3 Bedrooms Less than 2 Bedrooms 2 Bedrooms Sectional Title Per Square Metre Home Size Segments
Existing Homes vs Vacant Land
AVERAGE HOUSE PRICE BY MAJOR FULL TITLE SEGMENT 2014 2015 2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 FULL TITLE SEGMENT Full Title Average Price (Rand) 1,024,396 1,092,363 1,149,627 1,154,670 1,162,968 1,173,320 1,185,381 - year-on-year % change 7.2% 6.6% 5.2% 4.8% 3.9% 3.4% 3.4% - quarter-on-quarter % change 0.7% 0.7% 0.9% 1.0% 2 Bedrooms and Less (Rand) 546,042 576,190 605,540 608,246 609,072 610,504 612,217 - year-on-year % change 6.2% 5.5% 5.1% 4.8% 3.2% 1.8% 1.1% - quarter-on-quarter % change 0.5% 0.1% 0.2% 0.3% 3 Bedroom (Rand) 1,042,467 1,110,229 1,171,316 1,176,208 1,186,957 1,202,376 1,220,383 - year-on-year % change 6.5% 6.5% 5.5% 5.0% 4.2% 4.1% 4.6% - quarter-on-quarter % change 0.8% 0.9% 1.3% 1.5% 4 Bedrooms and More (Rand) 1,657,669 1,740,331 1,800,087 1,806,698 1,816,019 1,821,272 1,827,542 - year-on-year % change 6.3% 5.0% 3.4% 3.3% 2.8% 2.2% 1.8% - quarter-on-quarter % change 0.6% 0.5% 0.3% 0.3%
AVERAGE HOUSE PRICE BY MAJOR SECTIONAL TITLE SEGMENT 2014 2015 2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 SECTIONAL TITLE SEGMENT AVERAGE HOUSE PRICE Sectional Title Average House Price (Rand) 814,608 878,726 932,638 938,461 950,227 962,814 976,442 - year-on-year % change 7.6% 7.9% 6.1% 5.7% 5.3% 5.2% 5.4% - quarter-on-quarter % change 1.3% 1.3% 1.3% 1.4% Less than 2 Bedroom (Rand) 559,160 632,696 704,538 711,048 729,619 752,004 776,211 - year-on-year % change 8.5% 13.2% 11.4% 10.2% 9.7% 10.4% 11.5% - quarter-on-quarter % change 2.1% 2.6% 3.1% 3.2% 2 Bedroom (Rand) 712,577 766,227 814,994 820,393 831,498 844,179 858,141 - year-on-year % change 6.1% 7.5% 6.4% 6.1% 5.7% 5.7% 6.0% - quarter-on-quarter % change 1.3% 1.4% 1.5% 1.7% 3 Bedrooms and More (Rand) 1,098,307 1,176,091 1,237,295 1,244,463 1,256,033 1,265,647 1,275,448 - year-on-year % change 7.7% 7.1% 5.2% 4.9% 4.4% 4.0% 3.6% - quarter-on-quarter % change 1.1% 0.9% 0.8% 0.8% SECTIONAL TITLE PER SQUARE METRE Sectional Title Average Price (Rand/square me 9,032 9,777 10,499 10,581 10,766 10,963 11,163 - year-on-year % change 6.7% 8.3% 7.4% 7.1% 6.9% 7.1% 7.3% - quarter-on-quarter % change 1.7% 1.7% 1.8% 1.8% Less than 2 Bedroom (Rand/square metre) 10,924 12,275 13,821 13,980 14,398 14,870 15,337 - year-on-year % change 7.7% 12.4% 12.6% 11.9% 11.5% 12.0% 12.6% - quarter-on-quarter % change 2.6% 3.0% 3.3% 3.1% 2 Bedroom (Rand/square metre) 9,097 9,777 10,414 10,487 10,650 10,841 11,049 - year-on-year % change 6.6% 7.5% 6.5% 6.3% 6.1% 6.4% 6.9% - quarter-on-quarter % change 1.5% 1.6% 1.8% 1.9% 3 Bedrooms and More (Rand/square metre) 8,072 8,657 9,105 9,163 9,258 9,323 9,367 - year-on-year % change 7.1% 7.2% 5.2% 5.0% 4.7% 4.2% 3.5% - quarter-on-quarter % change 1.2% 1.0% 0.7% 0.5%