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Affordable housing: Red tape must be shorter

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Long and complex approval processes hamper provision of entry-level housing to meet the huge demand.

The need for affordable housing in South Africa’s cities is both a major political problem and a potential threat to stability, yet lengthy and complex regulatory approval processes mean it takes longer than ever for a development to be built.

Research conducted over the past year by the UCT Urban Real Estate Research Unit and the Western Cape Property Development Forum has shown the process now takes twice as long as it did just a few years ago, “largely due to long, complex and uncertain regulatory approval processes”, says the forum’s chairman, Deon van Zyl.

Ironically, this regulatory environment promotes gentrification, he says. “The delays being experienced and the costs associated with that reduces the viability of more affordable projects, which means developers are forced to produce exclusive products that will sell at higher prices.

“Who can afford these products? Really, only the wealthy. “We are now increasingly unable to service the most important markets where the real residential demand lies, and the result is an ever-overheating bubble at the top end.”

Van Zyl says the greatest demand for property in Cape Town is in the affordable housing market from people who spend a large part of their income and time getting to and from work. “We are talking about teachers, bank clerks, nursing staff, bookkeepers – the people who drive our economy but have no hope of finding an affordable home to rent or buy close to where they work.”

Van Zyl says for years the forum has been calling for a housing policy to see these types of homes created closer to where people work and for incorporation within plans for all residential developments.

But the lengthy regulatory process means the economy and market can have changed in the period between when a development was conceptualised and when it breaks ground. Van Zyl says this period is between four and eight years, “providing everything has gone relatively smoothly in the approval process”. 

This means developers are unable to determine what a safe bet would be. “Given the unacceptably long time it now takes for the approval processes, providing the right stock at the right time has become a guessing game for developers.

“Until the regulatory processes change in terms of the time it takes for approvals, and the construction industry recovers from the associated slump it now finds itself in, it will be very difficult to turn projects around quickly enough to meet the right demand at the right price.”

Daphney Klopper, franchisee with Rawson Properties Parklands and Table View, says: “The demand for housing continues to outstrip supply. “At the rate housing is being provided we are going backwards every year. The demand is increasing 10% a year and the supply trickling in at 3 to 4%.

“Until developers are afforded the opportunity, financially and land wise, to build for the affordable housing market, we will continue to see more building of what we already have, as opposed to more of what we need.”

If developments were conceived when the market was still in a boom period, before the current economic slump, the resulting property can be difficult to shift.

David Williams-Jones, of property developers FWJK, says: “You have to get your product mix right. For example, some developments recently launched in the centre of Cape Town have failed because their prices were too high or their mix included too many large and unaffordable units. There is a price point at which sales take place, regardless of the state of the economy.”

Echoing the demand for lower -priced developments, Nick Pearson, director of Tyson Properties Cape Town, says there is still a market but it has changed. “Developers in the Western Cape need to accommodate first-time buyers who are prepared to pay R1million to R2.5m for a property.”

Developments offering entry-level homes are in demand, says Klopper. “There is a healthy demand for developments in the entry-level and small home market, such as two bedroom apartments, houses and town houses.

“However, the price of land means it is not always feasible to launch developments at entry-level pricing. This means development is often geared towards the investor market who can then rent these units out. This is not helping our huge housing crisis with more than 500000 homes needed in the affordable housing markets. The gap market in each area offers little to the home buyer.”

Hayley Vann-Herbert, sales manager of Jawitz Properties Southern Suburbs in Cape Town, agrees: “It all comes down to price and positioning. Wellpriced developments are still selling. There is a market for developments in the areas around UCT for student accommodation, young executives or first-time buyers.”

John Chapman, director of the Rabie Property Group, says there is still a place for developments, despite the current economic uncertainty. “We are confident that offering a well-priced product in a safe and secure location and underpinned by an experienced precinct developer will continue to make great investment sense.” 

Affordability is more important than ever if you want to sell now

STRUGGLING Tough economic conditions have pushed the high-end market into a slump. Picture: Supplied

Poor economic conditions affect the residential property market, but people will always need somewhere to live, so while activity may slow, it never grinds to a complete halt and high networth individuals can still afford to buy.

Brett Leon, managing director of Lew Geffen Sotheby’s International Realty’s Atlantic seaboard and City Bowl office, has seen a drop in pricing by as much as 50% in central Cape Town and the Atlantic seaboard from the boom period of 2015 to 2016.

This has created opportunities for buyers. “Homeowners who are over-capitalised and need to sell off assets are offering buyers an excellent window of opportunity to undercut offers and successfully buy properties at good value.”

He says the current economic climate means there are also major discounts available for tenants. Nick Pearson, director of Tyson Properties Cape Town, says at the upper end of the market they are currently seeing a widening gap between demand and increasing supply.

“There is an obvious lack of consumer confidence at the high end of the market and, in some cases, we are finding a 15% to 20% margin for negotiation. 

“The lower end of the market is experiencing the exact opposite. There is a massive demand for a property priced between R1 million and R2.05m and it would seem developers cannot build fast enough to keep up with this demand.

“This differs greatly from previous years, when property prices were at an all-time high and consumer confidence allowed for incredible growth at the high end of the market. There is still a massive demand for property in the Western Cape – it has just changed in focus.”

Demand varies enormously according to area, says Hayley Vann-Herbert, sales manager of Jawitz Properties Southern Suburbs. “The top end of the market has an abundance of properties but the upper/middle market – prices from R3.5m to R7m – if priced well, are selling.

“We have limited stock in that bracket and that is where most of our sales are.” In some cases, the drop in prices has prompted sellers to take their properties off the market or reduce their prices. Owners may opt to pull their properties to hedge their bets, says Vann-Herbert. If they have not sold within three to four months, they consider taking the property off the market.

“They look at either selling or letting their properties, whichever happens first. They let the property for a year or so in the hope the market will improve.” Leon agrees. “Sellers who can afford to wait for the market conditions to strengthen will often take properties off the market to relaunch them for sale in more optimum conditions.”

Virgilio da Silva, sales partner with Rawson Properties Claremont, says it is not the norm for owners to withdraw their properties from the market. However, he says properties are remaining on the market for extended periods – sometimes more than six months. Pearson says they haven’t experienced properties withdrawn from sale but they have seen sellers reducing their prices to more market-related figures.

All the experts agree the market is still moving. Vann-Herbert says she doesn’t expect the supply-demand gap to change in the next few months but correctly priced properties are selling.

Leon agrees about the importance of marketing a property at the right price in the current economic conditions. “Correctly priced properties in the right locations will sell at a much better rate, causing the market to strengthen.”

Pearson believes the gap between supply and demand will narrow in the coming months. “We are definitely finding sellers are becoming more realistic with their prices and consumer confidence for buyers is once again on the rise. “It is a very exciting time to be in the real estate industry. It is an incredible opportunity for first-time buyers to get into the market.

“It is also a great time to scale up if your family is growing or you want to buy a more exclusive property.”

Lower end busy: Stock is challenge

BUYERS ARE LOOKING But more affordable stock is needed. Picture: Supplied

Despite facing challenging times, real estate agents are being kept busy around Cape Town. “Buyers are active in the market and the challenge is to find properties they can afford,” says Daphney Klopper, franchisee with Rawson Properties Parklands and Table View.

“In this area, duplexes under R1.1 million and cottages around R1.25m are flying, as are two and three-bedroomed apartments in the R600 000 to R750 000 range.

“We have to have more land and incentives in order to ensure we can build more for the market, which needs homes. Currently, the process is too slow and too costly.” Hayley Vann-Herbert, sales manager for Jawitz Properties Southern Suburbs, says buyers from two years ago are looking again.

“And they’re also looking to move up the property ladder. We’re finding Constantia properties priced between R4m and R7m is our busiest market.” Brett Leon, managing director of Lew Geffen Sotheby’s International Realty’s Atlantic seaboard and City Bowl office, agrees about the importance of marketing a property at the right price in the current economic conditions.

“Anything in central Cape Town priced under R3m has the potential to sell. “Until relatively recently, this price category in that the area was almost unobtainable but these realistic pricing adjustments will attract a much wider purchase audience.” 

Small gains: House market up

PROPERTY BAROMETER The residential market is holding its own. Picture: Michel Porro

House price growth remains below inflation, but mild improvements in demand and progressive mortgage lending have supported the residential property market in the third quarter of this year, according to the FNB property barometer.

The index edged up to 3.8% year-on-year in September, taking average quarterly growth to 3.7% year-on-year in 3Q 2019, lifting from 3.4% year-on-year in 2Q 2019. However, the barometer points out that depressed labour markets continue to weigh on household finances, which poses a threat to sustained demand growth.

The FNB Market Strength Index (a composite index which gauges demand and supply strength) has shown a narrowing demand-supply gap over the past few months. This is on the back of both the mild improvement in demand and the persistently slowing pace at which properties enter the market for resale. 

This is countered somewhat by the surge in the supply of new stock (particularly flats and town houses), as well as rising emigration-related sales. On the demand side, the improvement can be attributed to increased bargain hunting amid attractive pricing in the middle-to-upper price segments, increased competition between mortgage lenders and lower interest rates.

A further look at the 3Q19 data shows this market strength improvement was largely broad-based across price buckets. However, the data shows the lower end of the market to be relatively stronger, primarily due to the inadequate supply of well-priced properties close to economic opportunities, and also relatively stronger demand.


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