Experts predict housing stock shortages in lower end of market as a pandemic-caused pause in building developments comes into effect.
Stock shortages in some sectors of the property market could be felt in the coming months after residential property development, and the number of new plans passed, halted during the Covid-19 lockdown.
The severity of such supply constraints, however, could be overcome by a number of external factors, property experts say. Data from Statistics SA reveals that the value of recorded residential building plans passed decreased by 48.1% in January to June 2020, compared with the same period last year.
Limpopo suffered the biggest decline at 59%, followed by Gauteng at 54.8%, Eastern Cape at 51.3% and KwaZulu-Natal at 43.1%. Although the Western Cape suffered a relatively moderate 31.6% decline in value (third lowest), this amounted to R4.69 billion – second only to Gauteng’s R11.21bn drop.
Gerhard Kotzé, managing director of the RealNet estate agency group, believes the decrease in residential building plans passed will result in a “big drop” in the number of new homes delivered to the market in 12 to 18 months.
And as all construction came to a standstill during the lockdown, Stats SA figures show this to have caused a 70% drop in the number of homes that were actually completed between January and June, compared to the first half of 2019.
“So, right now, there are already far fewer new homes available than there would usually be, at exactly the same time as the residential market is experiencing a surge in demand in response to the lowest home loan interest rates in almost 50 years.
“First-time buyers are especially active, currently accounting for up to 70% of new home loan applications, and this is causing existing lower-priced stock to be absorbed at a rapid rate.” Kotzé says this is already triggering a shift towards a sellers’ market in the underR1.5m price category.
Herschel Jawitz, chief executive at Jawitz Properties, agrees that the mid-to-lower sectors of the residential market have been busiest in terms of new residential developments over the past few years but says it is too early to know whether the decline in completed developments will result in supply shortages.
The delay in the number of building plans passed, though, might be more telling as these give a longterm view of the number of new units that will be coming to market. “Currently, there is still an oversupply of developments on the market, or coming to it, so even if there was a slowdown in new units, it will be a while until the oversupply is taken up.”
Master Builders South Africa says security estates for younger families form the bulk of new residential property developments each year and this sector could face supply shortages. However, shortages could also be counteracted by the number of families who are emigrating, according to executive director Roy Mnisi.
“There are many available residential properties for sale, particularly in the upper market, and that should be enough supply for the foreseeable future. However, (the drop in completed developments) may adversely affect developmental planning and create a gap.”
But the residential property market that will suffer most due to low economic growth and Covid-19 will be the second and holiday homes market, Mnisi says.
In Cape Town’s southern suburbs and False Bay areas the most popular market segment for new developments is the entry-level bracket from R900 000 to R2.5 million, says Lew Geffen Sotheby’s International Realty co-principal Claude McKirby.
However, there should not be any impact on stock levels as most of the developments in this price segment are sold off-plan and will only go to construction once the prescribed minimum sales levels have been achieved.
“Many of these developments in the construction phase still have units available for sale as not all the units have been sold off-plan.” He adds that there are still completed development units for sale from the original developer from before lockdown.
While there could be stock shortages in these markets in the Winelands, says Chris Cilliers, chief executive and co-principal of Lew Geffen Sotheby’s, the market will also be fed by people needing to sell due to financial constraints.
“There is a feeling that there could be a lot of properties coming into the market once owners have exhausted the payment holidays from the banks.”