Older buyers supporting demand in sluggish market

The need for safe, comfortable and convenient lifestyles by people enjoying their golden years is supporting a level of demand in an otherwise sluggish residential property market.

This is the view of Gerhard Zeelie, Standard Bank Property Finance head of residential development finance, who tracks the retirement development market and sees it as a growing niche.

Standard Bank has provided about R717 million in funding for retirement village developments over the past 3 years.

Mr Zeelie says this growth is driven by a number of factors. First, he points to the essential requirement of retired people for security, access to basic health care and frail care.

“However, it is becoming increasingly difficult for people to afford their retirement and many opt to scale down by selling their property and moving into an affordable development thereby subsidising their pension.”

“In addition, it is very difficult for young families to look after parents on their own partly due to pressures of modern life. Children often assist retired parents to access affordable retirement products,” says Mr Zeelie.

The residential property market is experiencing pedestrian growth and Standard Bank’s view is that this will continue through 2012 with the nominal house price increase forecasted to be in the region of 2% for the year.  

Mr Zeelie says that in real terms property prices are thus decreasing. “This presents a challenge for a lot of developers and financiers to identify niche markets that are growing at above average rates compared to the rest of the property market,” he says.

One such niche is the retirement market and specifically the more affordable retirement market. The Central Development Group has been very successful in capturing this market and Standard Bank has provided financing on a number of these projects.

The partnership has successfully brought to market four developments in Gauteng since August 2009, with the three having been marketed over the past year.  The developments are the Tweeriviere and Wilgers developments in Pretoria, Douglasdale in Fourways and Village Walk in Benoni.  The aggregate gross sales value of these developments is in the region of R1.2bn.
Anton Crouse of Central Development Group says the company is confident in the retirement market and has refined its model to deliver successful developments.  

“Our partnership with Standard Bank is key because it is critical that our financier also has a thorough understanding of this market and the residential property market in general”, says Mr Crouse.

Gary Garrett, Head of Standard Bank Property Finance, notes that a crucial feature for retirement developments is whether they are sold as full or sectional title units or as life-right products.  A life-right entitles the owner to full occupancy rights for as long as they live. When they die, their residential unit reverts to the developer and their estate only receives the original purchase price.  The life-right product is generally less liquid than a sectional title unit and funding from banks is typically not available.  Life-right products can also not be acquired by investors to rent to retired people.

Mr Garrett also points out that developers need to ensure that the required common infrastructure like frail care, dining room and recreational hall are built during the first phase and delivered before any purchasers take occupation.  This is something which the Central Development Group executes on very well since they always ensure that this is put in place during the first phase of all their developments.

“Initial purchasers can, therefore, rest assured that they will not find themselves living in a development where promised infrastructure is not delivered. For the financier and the developer, getting this right and in place from the beginning greatly enhances the marketability of the developments,” says Mr Garrett.

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