Sunday, October 21

Sectional titles surge ahead in price growth

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The difference in house price inflation between sectional title and freehold is usually less pronounced and conventionally about 1%.

Buyers looking at sectional title homes could pay almost 6% more for these properties this year, new data from Lightstone has disclosed.

This translates to almost R60 000 more for every R1 million spent on a sectional title home.

This property type is leading the pack in terms of house price growth, with Lightstone forecasting this to be from 3.4% to 5.9% this year. This means a R1 million sectional title home could cost from R1.034 million to R1.059 million.

By comparison, freehold properties will cost buyers 2% to 4.5% more, translating to an extra R20 000 to R45 000 per million rand.

The difference in house price inflation between sectional title and freehold is usually less pronounced and conventionally about 1%. Paul-Roux de Kock, analytics director at Lightstone, says recent months have seen a reversal of this trend.

“Sectional scheme properties have experienced some growth and this is probably due to this segment’s affordability and added benefits like security and maintenance.”

He says this trend will persist into 2018.

Lightstone also predicts variations in the inflation forecasts of prices for mid-, high- and luxury value properties.

“Looking back at the past 18 months we have observed price inflation of mid-value properties has tended to be about 2% above national inflation. High value properties are 0.5% below national inflation and luxury properties sit at about 2% below national inflation.”

Therefore buyers of mid-value homes can expect to pay R46 000 to R75 000 more per million rand, while high value and luxury properties will cost between R26 000 and R50 000 more, and R8 000 to R30 000 more respectively.

De Kock says higher growth in lower market segments have “not been the norm”, with the luxury segment experiencing disproportionately higher growth from 2009 to 2016. He attributes this to the possible combination of the decline in luxury segment inflation due to owners scaling down and more buyers from the informal housing market entering the lower-end market. “This would drive the increase in the lower- and mid-value segments.”

Overall, house price inflation is expected to remain similar to the around 4% achieved by the end of last year.

With consumer price inflation expected to remain stable at between 4% and 5.5%, GDP expected to grow by between 0.7% and 1.5%, and interest rates to change by 0.5% and 1%, these ranges are also indicative of deviations for house prices this year. In other words, “if the economy does not fluctuate, neither will house prices”.

De Kock says: “In 2017 the market was very much towards a buyers’ market. This will start stabilising in 2018 with investors feeling more positive about South Africa.

However, we might not see the full effect of a potential economic turnaround play positively into property price growth until the noise around land expropriation without compensation dissipates. Luxury property inflation will continue to decrease, but the deviation will be more subtle. Sectional title property will enjoy more growth as its popularity will endure into 2019.”

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