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Residential developers trickle back into the market


Residential developers trickle back into the market

After six-years of low residential sector building activity, which has exacerbated property stock shortages, developers are starting to take a more optimistic view of the market.

Developers seem to be coming back into the market after the start of global financial crisis in 2008 forced many to sit on the fence.

Despite the renewed interest to undertake residential investments, industry players note that building activity is still low, and not back to the levels seen in 2007.

Figures from Statistics South Africa indicate that on a three-month moving average the number of residential units completed and introduced to the market was about 3 000 in 2014 compared with 7 000 in 2007.  However, the picture looks more optimistic in terms of building plans approved, as 4 000 units were approved in 2014.

Chairman of Seeff Property Services, Samuel Seeff, says when the financial crisis hit South Africa, there was little demand for new development, given that the market was flooded by stock coming from financially distressed sellers and bank repossessions.  

“Given that there was no demand for new development there was no incentive for developers to venture into a market where they could not compete,” explains Seeff.

The bank lending taps also dried up, leaving many developers without capital to pursue developments. Property analyst for Absa Home Loans Jacques du Toit says that now banks have come to the party by extending debt to developers, but “not to the extent of the mid- 2000s when there was a boom of developments”.

Although the residential sector is “not performing badly”, pressures of supply and demand still weigh the market.

“We have seen strong growth in the planning phase of buildings, but everything that is planned is not necessarily built…Demand is growing, but supply is not,” Du Toit says.

A recent PwC report titled Real Estate: Building the future of Africa indicates that in 2012 the housing backlog was estimated to be 2.1 million units. By 2014, the backlog stood at 2.3 million residential units – a figure that is estimated to grow by 178 000 units each year.

Seeff says that over the last two years the market has seen “a significant” uptick in demand, with areas that have seen an oversupply of properties now experiencing stock shortages. This scenario has created opportunities for developers to return to the market, he says.

The shortages also have a positive spin-off for homeowners. Du Toit says over the last two years, nominal house price growth (after inflation has been accounted for) reached 10% (year-on-year) in January, as a result of shortages.

Seeff supports this view: “In high demand areas where stock is in short supply, we are beginning to see buyers pay a premium again for property, something that we did not see even two years ago. In some instances up to 25% to 30%.”


Stock shortages are across all property markets, but more in the lower to middle price points (R750 000 to R2 million), says CEO of Jawitz Properties Herschel Jawitz. These markets have seen high-rise and sectional title developments, he says.

Even the top-end market, represented by property prices from R5 million, are seeing developments on the back of stock shortages.  

Du Toit says developers are now targeting areas where there are strong public transport nodes such as the Gautrain with a potential for high density – for example, Sandton and Rosebank.

A number of luxury apartments are springing up in Sandton. Lushaka Investments has launched a mixed-use development called Central Square, where apartments are selling for up to R50 000 per square metre. Barrow Properties’ launched Katherine & West penthouses opposite the Gautrain Station, where duplex penthouses retail for up to R45 800 per square.

Another two luxury apartment developments are selling off-plan; Metropolis on Park and Embassy Towers, with basic apartments selling for up to R6 million.

Rosebank has also seen building activity. Renprop, in partnership with Grapnel Property Group, is launching its second luxury apartment development in Rosebank called The Tyrwhitt.  

Redefine Properties has recently launched 445 luxury apartments to the tune of R1 billion called Park Central on the corner of Baker Street and Keyes Avenue in Rosebank. Apartments are selling off plan for up to R45 000 per square.

In Cape Town, Growthpoint Properties announced the completion of its residential rental complex, The Breakwater, opposite Victoria & Alfred (V&A) Waterfront. About 150 residential apartments have been released into the market selling up to for R18 000 per month for rental.

More residential buildings are expected to be completed in 2015 to address property shortages. Household and property sector strategist at FNB John Loos forecasts that the square meterage of residential buildings completed is expected to grow by 23.6%.


Author Ray Mahlaka
Published 24 Mar 2015 / Views -
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