Hindering land costs
Most of the action may be taking place in the sub-R1-million market, but getting into this market is no easy task.

According to Paul Mulder, KZN Regional Manager of Inframax, demand is the highest for units in the R400 000 to R800 000 bracket.

Yet there are three obstacles to overcome in this market: the lack of suitable zoned land, the too-high cost of land that is available and the exceptionally long period and high costs involved in undertaking the environmental impact and other necessary assessments, as well as the rezonings.

Land must be 'free'

“The plain truth is that experienced developers of lower cost mortgage bonded housing hit a brick wall when they had to cope with raw land prices that worked out at R15 000 to R20 000 per housing opportunity, especially if they want to get into the below half a million bracket. To develop in this market, the land will have to be almost free,” he said.

He said that promises from government to streamline the approval process have not yet materialised — but are still absolutely essential.

“The major infrastructure projects for 2010 have all been able to shorten the approval times and cut through the bureaucratic red tape. If they can do it, it should be possible for developers of urgently needed residential housing to do the same.”

Overcoming the cost

With the present long approval process, certain developers are going at risk and are starting projects, knowing they may be radically altered or changed by the officials down the line — but no developer working for investors or shareholders can go that route without endangering his capital — and his job.

The high land cost can potentially be overcome by breaking down the land sellers’ price into upfront payments followed by a payment after completion and/or sale or by ceding certain units to the seller.

In other instances it has been possible to enter into a joint venture arrangement with the landowner.

State land

Where the land belongs to the state, the province or the municipality, Mulder said these bodies should recognise their duty, firstly to sell it and, secondly, to do so at a low cost, thereby facilitating the development of lower cost housing.

They should monitor the proposed bidders and select those projects most likely to improve the occupants’ lifestyles rather than work on straight mathematical formulae.

“The state authorities know as well as we do that high land costs are holding up affordable housing but so far they have taken very little action to remedy this situation,” he said.

Game reserve opportunities

Where private enterprise mega-developers/land sellers are launching new projects, preference — and reduced land prices — should be given to those sub-developers whose previous projects in the precincts have proved satisfactory.

At a recently launched land development, the reserve stand prices were so high that completed units would have had to be priced way above the current acceptable price that the market will pay for similar units in established estates with considerably more amenities, he said.

Instead more opportunities could maybe be found further afield — with private game reserve residential projects beginning to proliferate throughout KZN and many of the smaller towns now offering retirement and holiday housing opportunities.

Article from: www.iafrica.com