Existing stock will increase in value as new stock shortages impact on the market
There have been very few residential property developments in South Africa for some 24 months now bank restrictions on development and bond lending have almost closed down this type of initiative, says Bill Rawson, Chairman of Rawson Properties.
Only exceptional projects with absolutely assured sales have been able to attract funding, said Rawson, but, although this is regrettable, the lack of new stock will inevitably make existing stock far more valuable. In all our franchises we can see a situation arising in which the pent-up demands for homes will lead to price rises in the next twelve months.
The value of existing stock, added Rawson, will be enhanced by the increasing cost of building.
The rise in building costs in the last two years has been nothing short of phenomenal. If and when developers get going again they will still not be able to produce new stock at prices that compete with existing homes.
Those delaying improvements and upgrades, added Rawson, should not do so.
I cannot see any likelihood of building prices falling all we can predict is that at some stage the price increases will level off.
Repeating what he has said on several previous occasions, Rawson said that those investing in residential property now could well be buying at a 25 to 30% discount on the peak prices of 2006/2007 and in certain instances (e.g. on repossessed properties) they can get returns of up to 12%.
The average return is still only 4 to 5% but many of our clients are doing far better than this. Considering that the banks are now offering only 7% on fixed deposits (with no likelihood of an increase until rates rise again), residential property, on which rentals increase year on year and which will appreciate at close to 10% per annum from now on, is still a wise investment choice.
Asked if commercial, industrial or retail property is not a better option than residential right now, Rawson said that there have recently been a number of long vacancies in some of these properties but rented residential properties are still in high demand.
Article from: www.rawsonproperties.com