A LENGTHY “land to stand” process might be adding as much as 20% to the cost of a residential unit and could explain big price increases experienced in the affordable housing market, the Banking Association of SA said yesterday.

Although the perception existed that cost increases were due to developer profits and increases in the prices of materials and finance costs, the banking industry suspected it might be due to the lengthy period it took to transform a piece of raw land into a serviced stand ready for development.

“The development approval process is too lengthy and goes through multiple (government) departments a number of times, which slows the whole thing down,” said Pierre Venter, financial services charter co-ordinator for housing within the Banking Association.

Venter said the four major banks had commissioned pilot studies in three municipalities through a “process consultant” who was able to reduce the development approval time by as much as half.

In light of this, the Banking Association commissioned independent research on the cost drivers of housing, which should be available by the end of May.

In terms of the financial services charter, the banking industry has committed to originating housing finance loans totalling R42bn over a five-year period ending December this year.

The target market for these loans is households earning between R1800 and R9600 a month.

But Venter said the average price of a house in this segment of the market had increased to about R208000 and that it was experiencing annual price increases of 25%.

“This is pushing the price of housing above the affordability level of FSC (financial services charter) target market households,” he said.

Illustrating perceptions that building cost increases, among other things, were responsible for the price increases, Venter said one resolution at the African National Congress’s Polokwane conference in December last year was to bring in price controls on building materials.

But, he said, the Bureau for Economic Research had shown that building material prices had increased only slightly faster than the CPIX (the consumer price index excluding mortgage costs).

“The banks suspect the massive price increases are because of the extraordinary time it takes for a developer to develop a raw piece of land into a serviced site. This period can be anything up to three years,” Venter said.

Because of this lengthy period, he said, the developer incurred “substantial” holding costs and also faced high levels of uncertainty and risk.

“How do you create a business plan today if the whole process from ‘land to stand’ is three years?”

Venter said the period between the time the stand was serviced to when it was completely developed was about two years, meaning the whole lead period was up to five years long.

Article by: Nick Wilson - www.businessday.co.za