High development costs underpin residential resale market

Property developers are increasingly obliged to provide – and pay for – infrastructure for new residential developments as local authorities struggle to provide services to new suburbs.

This practice is contributing to rising prices of new housing stock and is creating greater demand for existing houses, says George Krause of leading Garden Route estate agency Homenet Trio.

“Existing stock is still cheaper but increasing demand is pushing up prices in this sector as well with the result that all property becomes more expensive,” Krause says.

“A case in point is Knysna, where property prices are high. Developers here not only have to pay for infrastructure such as roads, street lights and storm-water drains, they also have to make a plan for water supply by, for instance, building reservoirs. On top of that, developers report that a fee of R30 000 per stand in new developments is payable to the council.

“Developers have to recoup these costs from buyers, with the result that prices of units in new developments are escalating. Knysna stands now cost between R800 000 and R3m while building costs range between R4000 and R6000/sqm, depending on finishes.

“By contrast, prices for existing units start at just under R1m, which would buy an apartment in Knysna and, if you are lucky, a three-bedroom home in neighbouring Sedgefield.

“Most free-standing homes in Knysna are sold in the price bracket between R2,8m and R3,2m while upmarket units on Thesens Island sell between R3m and R8,5m. Average prices for homes in Sedgefield range between R1,8m and R2,5m. But we are seeing a definite escalation in prices.”

Krause says the market is responding by searching for value elsewhere. “For instance, the Grootbrak area about 60km form Knysna towards Cape Town is now expanding fast. Stands of between 500 and 800sqm are still available here at prices of between R360 000 and R450 000 while standard three-bedroom homes are still relatively cheap at prices of between R750 000 and R1m. These prices make Grootbrak property an attractive option for retirees and holiday investors.”

Article from: www.homenet.co.za