Property logjam brewing

A potential shortage of property stock is brewing with major implications for property values and investment returns down the line.

That’s the warning from Gerhard Kotzé, CEO of the ERA South Africa property group, who says that while this may be difficult to imagine given current market conditions, there are early indicators that such a scenario is in the making.

"Various factors are contributing, not least of which is the current boom in the property rental market. This points to pent up demand for property, if you accept that the majority of tenants would prefer to be property owners but are currently stymied by high interest rates and other factors.

Demand to be unleashed when rates fall

"Giving substance to this view is the fact that at least half of home loan applications are currently being rejected by the major banks, pointing to frustrated demand even in the current poor economic climate. The banks are clearly making things tougher for buyers by tightening their lending criteria and in the process they are inadvertently creating a logjam of demand that will be unleashed when interest rates drop and business conditions perk up."

He says limits are also being placed on the future availability of stock by delays in new development due to a lack of electricity, problems with the supply of other essential services and poor service delivery by town planning departments.

Building activity well below expectations

"Indeed, FNB reported recently that second-quarter activity in the residential sector of the building industry was well below expectations."

A further pointer to the coming shortage of supply, Kotzé says, is that investors are reportedly acquiring older blocks of apartments in the traditionally middle and upper income areas for refurbishment and rental. While this improves the standard of these units, it does nothing to add to the pool of housing for sale.

"Fortunately it’s not all bad news. For example, the first new apartment block to be constructed in Braamfontein in 50 years is due for completion by November. In Berea, Johannesburg, 133 loft style bachelor apartments are being developed and low cost sectional title developments are appearing in every major metropole.

"However, there is still the question of whether supply will be able to meet demand with the advent of the property market upturn."

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