Lack of consumer confidence in residential sector could end soon

While there has been a clearly detectable upswing in business confidence in all the areas in which Inframax Developments works across South Africa, consumer confidence in the residential property sector has not yet recovered.

This was said recently by John Weaver, one of the Inframax Developments’ directors who some six years ago took the company into the middle bracket residential sector. (Previously it had focused mainly on large government low cost housing projects handled by The New Housing Company (NewHco), to whom Inframax Developments’ staff provided development management services.)

Business confidence, said Weaver, has been boosted by the recent strengthening of the rand, by the expectation that the oil price will return to a slightly more manageable level and by the growing belief that the sub-prime crisis in the USA and Europe, although disastrous, can be contained.

Consumers, on the other hand, said Weaver, are still nervous that there could be a further one or two rises in the interest rate – and they are waiting to see a rate drop before making further purchases.

In the residential sector, he said, this means that sales in new developments where the units are priced from R1 million to R3 million are now very slow. The buy-to-let investors, although encouraged by the rise in rentals, are still hesitant and are only prepared to sign where the buy is clearly an excellent bargain. Rentals, added Weaver, are likely to be further boosted by the stock shortages that will follow on the slow-down in developments, which have additionally been held back by the lack of electricity supplies for new developments.

Inframax Developments, said Weaver, had seen which way the market was turning and had initiated alternative strategies from early 2007 when the company cut back on projects with units priced in the R1 to R3 million bracket and now has very little stock still to sell in this price range.

Inframax Developments had also, said Weaver, initiated a drive to produce “affordable” units in the R500,000 to R1 million bracket - because there is still strong demand here - and is “working hard” to find ways of producing even less expensive homes, some priced as low as R200,000.

“It has often been said that it is impossible in an urban area to produce a new home at these prices, but we believe that it can be done,” said Weaver. “What is more, although small and sparsely fitted out, such homes are a huge step up on a shack in an informal settlement, especially if they are appropriately located within the urban fabric so as to cut down on travel times and be close to nodes of high employment, schools and retail outlets.”

In previous interviews Weaver has said that Inframax Developments’ strength lies in the thorough investigatory and planning work that it does before embarking on any project.

This was corroborated by Dr Willie Els, MD of Inframax Holdings.

“We do not”, said Els, “ever rely solely on gut feel or unsubstantiated predictions. We employ good professionals and we do our research thoroughly. As a result we have in the last five years had a succession of fast selling projects.”

In response to the current slow down in residential projects, said Weaver, the company is now expanding its involvement in industrial developments. They recently announced a R40 million factory/warehouse development in Monte Carlo, in the Westmead industrial area of Pinetown, KZN. This will complement their recently completed industrial park in Milnerton, Cape Town. Inframax is also building up its retail and commercial property portfolio, the total value of which, with the industrial components, is now over R 200 million.

Article by: www.inframax.co.za