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Freehold homes set to be expensive

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04 Jan 2013

A welcome recovery in the ‘traditional’ value of freehold residential property (especially in comparison to sectional title property) is now underway. 

An FNB review indicates that sectional title units, with only four percent nominal/cash growth, are currently still experiencing negative growth, while the freehold sector, with 6.7 percent year-on-year growth, is, in fact, now seeing some growth in real terms.

This is according to Tony Clarke, managing director of the Rawson Property Group, who says this trend has been identified nationally by FNB property economists John Loos and Theo Swanepoel, who also serve as compilers of the FNB Property Barometer.

They say a big upsurge in first time and buy-to-let buyers in the boom years prior to 2008, led to sectional title units being priced far higher than freehold homes on a room or square metre basis.

“However, since 2010 the price of sectional title units has not increased at the same rate as those of freehold properties.

“An FNB review indicates that sectional title units, with only four percent nominal/cash growth, are currently still experiencing negative growth, while the freehold sector, with 6.7 percent year-on-year growth, is, in fact, now seeing some growth in real terms.”

What does this mean for buyers and house sellers and how should it affect their decision making?

The analysts say they expect the gap between the two segments to be further reduced in favour of freehold properties.

Quoting examples to emphasise the significant changes now taking place, FNB says in the second quarter of 2009 the average three bedroom sectional title home sold for R128 222 more than the average three bedroom full title home.

In percentage terms it was 16.5 percent higher. By the third quarter of 2012, the gap was an insignificant R6 096, which equates to 0.6 percent. Similarly, if one looks at the gap between the average full and sectional title homes, it had grown by the third quarter of 2012 from 9.4 percent in 2006 to 32.4 percent in 2012.

This data, Clarke says, supports what many of their franchisees have said in the area reviews. They have repeatedly warned that the affordability (the bargain prices of recent years) will not last that much longer for freehold homes..

Clarke  points  out that the significant drops in bank repossessed properties will make all homes, but particularly freehold properties, more scarce and therefore more expensive.

“The message which we have all been putting out, that the current time is a good period to buy, has now been reinforced – even though the recovery in both freehold and sectional title properties is unlikely to be spectacular for two to three years – the fact that freehold is now appreciating at 6.7 percent is noteworthy, especially as this growth rate could show a slow but steadily increase from now on.” 

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