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Johannesburg – First National Bank said on Friday while higher end areas played catch-up with the lower end, in terms of market strength, smaller-sized properties still appeared more popular.
The bank’s household and property sector strategist John Loos said in a statement that in recent times the bank had seen quite a few “performance gaps” in the residential property market narrowing. The initial residential recovery, back around 2010, was a “financially constrained” one, driven by big interest rate cuts through 2009.
“The lower and middle income areas, which have arguably more credit dependent households, were first to respond, while upper income areas lagged,” he said.
However, from 2012, FNB indictors showed market strength in the upper income areas catching up steadily.
“Then, more recently we saw the strength of both the middle and upper income areas accelerating ahead of the lower income areas, according to valuers’ perceptions at least,” said Loos.
Performance gap
A second key “performance gap” which has narrowed, has been that between the full title market and the sectional title market, he said.
“This came, we believe, as a result of extreme high levels in both first time buying, driven in part by buyer panic, and a massive surge in buy-to-let buying, with sectional title units being a key target for a large portion of these two sources of demand.”
Then came the “over-building” of sectional title units, he said. “This was followed by a slump which was more severe in this segment than that of the full title market, due to the more extreme level of ‘over-investment’ in sectional title during the boom years, which had to be ‘undone’.
From 2008, a significant “correction” took place in the sectional title market, he said.
“Building activity in this segment, following the building boom up until 2007, appeared to recede more sharply than in the full title segment and the sectional title segments’ real price decline was more severe than that of full title,” Loos said.
The result was a “normalisation”, or renewed widening, in the average price gap between full title and sectional title segments.
“Whereas the average full title property price was only 6.8% higher than the average sectional title unit at the beginning of 2004, by mid-2013 this percentage had risen to 16.4%.
“By the second quarter of 2014 we saw the FNB house price index for sectional title properties rising at 8.2% year-on-year, slightly higher than the 8% of full title, the performance between the two segments therefore almost the same.”
The bank’s household and property sector strategist John Loos said in a statement that in recent times the bank had seen quite a few “performance gaps” in the residential property market narrowing. The initial residential recovery, back around 2010, was a “financially constrained” one, driven by big interest rate cuts through 2009.
“The lower and middle income areas, which have arguably more credit dependent households, were first to respond, while upper income areas lagged,” he said.
However, from 2012, FNB indictors showed market strength in the upper income areas catching up steadily.
“Then, more recently we saw the strength of both the middle and upper income areas accelerating ahead of the lower income areas, according to valuers’ perceptions at least,” said Loos.
Performance gap
A second key “performance gap” which has narrowed, has been that between the full title market and the sectional title market, he said.
“This came, we believe, as a result of extreme high levels in both first time buying, driven in part by buyer panic, and a massive surge in buy-to-let buying, with sectional title units being a key target for a large portion of these two sources of demand.”
Then came the “over-building” of sectional title units, he said. “This was followed by a slump which was more severe in this segment than that of the full title market, due to the more extreme level of ‘over-investment’ in sectional title during the boom years, which had to be ‘undone’.
From 2008, a significant “correction” took place in the sectional title market, he said.
“Building activity in this segment, following the building boom up until 2007, appeared to recede more sharply than in the full title segment and the sectional title segments’ real price decline was more severe than that of full title,” Loos said.
The result was a “normalisation”, or renewed widening, in the average price gap between full title and sectional title segments.
“Whereas the average full title property price was only 6.8% higher than the average sectional title unit at the beginning of 2004, by mid-2013 this percentage had risen to 16.4%.
“By the second quarter of 2014 we saw the FNB house price index for sectional title properties rising at 8.2% year-on-year, slightly higher than the 8% of full title, the performance between the two segments therefore almost the same.”
