Looming stock shortage will see apartment prices rise in 2013

Experts are predicting that the continuing downward trend in the number of building plans passed for new apartment developments will see the prices of existing apartments being driven up in the first quarter of 2013 as demand eventually starts outstripping supply.

According to Pam Golding Properties development manager Bev Bloch, Stats SA has confirmed that the first quarter of 2012 reflected a continuation of the trend in “building plans passed” at a level around 80% down on the peak levels achieved in 2006/2007 and 50% lower than the mean prior to the 2006 boom, owing to the high costs associated with new builds and a depressed demand from consumers.

“This will result in a shortage of new apartment stock becoming available as the current ‘surplus’ is taken up, which is already starting to happen as buyers come back into the market. The lack of availability of zoned land will further exacerbate this situation. We anticipate that demand will start driving prices up in this segment of the market by the first quarter of 2013,” she says.

“Astute investors are now looking to take advantage of historical prices in a market that has clearly bottomed out – many developments have not altered their prices since the 2009 recession. At a development like The Quadrant in Claremont, Cape Town, for example, sales for 2012 have already outstripped those for 2011. We have also seen a dramatic increase in the take up of rental stock, notwithstanding a 20% increase in rental prices. Investor returns are now reaching reasonable levels considering the anticipated capital growth over the next few years.”
Bloch emphasises that the real-estate industry is cyclical and that the Western Cape property industry is finally on an upward curve.

“The industry is starting to breathe more easily as we see signs of a long-term recovery. Potential buyers are looking for value for money and, because of increased travel costs, they want to live closer to their places of work, as well as good schools and convenient shopping centres. ‘All-in-one’ complexes like The Quadrant, which offers a gym, hairdresser, library, restaurant and other amenities, are the first choice. Buyers are looking for ‘extras’ like top-notch security, concierge services, views and landscaping when making their final choices.”

According to FNB’s property barometer, the average house price growth in the Western Cape continued to outperform that of other regions in the first quarter of the year, increasing by 8.2% year-on-year to R963 123. While it still takes, on average, 17 weeks and six days for a property on the market to find a buyer this, according to FNB, is an improvement on the time it took in 2008, 2009 and 2011.

Meanwhile, bond originator ooba says that home loan approvals are up by 49% year-on-year, which is their best performance since April 2008. Ooba also points out that the South African economy grew at a rate of 3.4% in the last quarter of 2011, up from 1.7% in the previous quarter.

Another sign that the property industry might finally be on the upswing is FNB’s calculation that household indebtedness is slowly falling, from 83% in 2008 to 74.6% in 2011, an almost 10% decrease in three years.

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