Developer alert

Small, independent developers have become a significant feature of the property market in recent years but the phenomenon brings with it dangers as well as benefits.

"Traditionally in South Africa, development was very much the prerogative of larger companies, but while the big players are obviously still very much in the picture, recent years have also seen the emergence of numerous small independents," says Gerhard Kotzé, CEO of ERA South Africa.

A growing trend

"The trend was arguably sparked off by investors acquiring a single property, giving it a makeover and on-selling it at a profit, then repeating the process, sometimes on a growing scale," says Kotzé.

Similarly, many owners of large properties have decided to sub-divide and then offer the new stands to others to build several cluster or sectional title units.

Estate agencies have also suddenly become developers, in order to benefit from the entire profit chain rather than just sales.

There are also many new private developers in the market who are doing it the right way — acquiring land for their own account and basically project managing one or more new homes from scratch — outsourcing the likes of architectural and building expertise. Often the resultant products are high quality because the private developer has been attentive to detail and demanding of all suppliers.

On the downside...

There are however some pitfalls for buyers… Kotzé explains that "development is a costly process — not least because of the long delays now in getting rezonings and planning permissions approved, and the high holding costs associated with those delays."

Buyers thus need to be aware of the reputation, financial standing and experience the developer has, as if they don't have the finances or the experience, they may cut corners on the building — meaning ultimately one is left with an inferior product.

Want to get in there?

If you are perhaps thinking of a property purchase with the intention of becoming a developer, you should first take into account a number of important factors before you just jump in there.

Factors you need to think about would be town planning issues, quality of access to the property, the quality of the node or area where the development is proposed, the design of the property, costs, environmental and local issues and the track records of any suppliers you intend using.

Profits not so easy

"The sub-divisibility of a site especially has to be ascertained. In this respect, zonings or other limitations may make it difficult or impossible to realise the potential of a given site, leaving the buyer with a property that is difficult to sell and for which he may have paid a premium on the expectation of turning it to good account," says Kotzé.

"Moreover, small developers have to make allowance for planning approval delays, building supply escalations and problems with the supply of services, all of which can add to the holding costs of a development, eroding or eliminating the profit margin on the job."

Article from: www.iafrica.com