High construction costs emphasise the value of second hand stock
Repeated statements by estate agents that South African residential property, far from heading towards a price bubble as some commentators have predicted, is in fact still undervalued, are borne out by the latest residential building statistics released by Absa's chief economist, Jacques du Toit, and his research team.
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"These figures," says Mike van Alphen, national manager of the Rawson Property Group's bond origination division, Rawson Finance, "indicate that the average cost of new housing constructed in the first two months of this year was R5,442 per m2, up 8.75% on the costs of the same period last year. By my estimates this is almost 22% higher than the average cost of secondhand homes sold by our group in the same period this year - which possibly explains why developers, with some noticeable exceptions, are still struggling to return to pre-recession levels of activity."
Van Alphen added that, while his statement should encourage investors to continue to investigate the good opportunities in the secondhand housing market, they should also take notice that new middle and lower bracket sectional title developments in high demand areas have, in the last few years, proved to be the most successful, fastest appreciating of all property investments, giving an average a 7,25% rental return from day one, with some often doing far better than this. They are also experiencing capital growth ahead of the national averages.
"Obviously sales figures vary widely depending on the area - with upper bracket housing still awaiting a revival - but below R1,5 million, the investor, it would appear, simply cannot go wrong these days and all the indications are that this situation will prevail because demand continues to exceed supply."
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