Boom for residential estates
Despite housing markets around the world experiencing a slowdown in prices thanks to challenging economic conditions and political uncertainty, there is still potential and value in investing in property in South Africa. This is especially the case when it comes to residential estates, which are currently experiencing a boom in the local market.
This is according to Clifford Oosthuizen, MD for Westbrook – a multigenerational estate in Port Elizabeth – and Christo Slabbert, sales associate at RE/MAX who’s team was awarded “Team of the Year 2018” for the most properties sold and ranked number 12 internationally.
There are numerous opportunities in high-growth areas like Port Elizabeth where those looking to invest in residential estates can get valuable momentum. In fact, Statistics South Africa has identified Port Elizabeth and East London as areas to consider especially when property costs are a concern.
It ranked houses and townhouses in Nelson Mandela Bay Municipality highly on size, while construction costs in the area are low when compared with other metropolitan areas.
The FNB House Price Index for February 2019 fell slightly, reaching 3.7%, down from the 4% in January and the 3.9% average of 2018. FNB believes the trend of house prices remaining below CPI inflation, or losing value in real terms, is something that has continued since early 2016.
Despite this, Lightstone forecasts that GDP will grow between 0.75% and 1.5%, and CPI will range between 4% and 5% this year. This sees their expectations for house price increase over the coming months hovering at between the 2% and 4.5% range – a good sign that there will be forward momentum in 2019. And with many analysts expecting a post-election improvement in the economy, property investors need to give serious consideration to when they enter the market.
“South Africans have become increasingly hesitant to invest in traditional property given the perceived difficulties in selling those homes in a slowing market. But residential estates provide a strong alternative as they provide investors with significant additional value encompassing security, schools, medical facilities and beautiful environments,” says Oosthuizen.
“There is a big shortage of quality homes available for sale in Port Elizabeth up to R1.5-million and Westbrook as a major developer have identified this gap,” says Slabbert. “They are targeting buyers who want to downscale to live in lock up and go units where security is good and there’s less maintenance.”
“Estate living is something that has grown in popularity over the past few years. Safety and security are often-cited benefits that have a direct impact on the return on investment these properties generate. Certainly, lifestyle benefits and communal facilities also contribute to the strong sense of community created in these estates,” says Oosthuizen.
“When it comes to residential estates, the perks are buying into a development where the actual built home can be viewed and where buyers don’t have to pay interest on the bond before the home is registered in their name,” he says.
With inflation being kept under control, consumer debt-to-income ratios have dropped from 87% in 2008 to 72% in 2017. Adding impetus to potential market growth is the fact that interest rates have also been kept relatively low in recent years that could spur investment in developments, especially burgeoning residential estates.
Most first-time buyers prefer to invest in new developments because there are no transfer fees payable.
“However, when it comes to buying off-plan, buyers must ensure they understand the plan that they’ve signed for and what the price includes and excludes. They must also be aware of the interim interest that they must pay with the plot and plan built,” says Slabbert.
Spurring the move towards more spacious and affordable residential estates is the availability of micro-units (almost 30% smaller than a conventional sized studio) for rent in Cape Town. These have an average monthly rental of up to R9,800. And while it does create neighbourhoods within buildings, many South Africans still prefer having access to the wide open spaces offered by residential estate living.
Moving beyond the cost, design, and purchase of property inside residential estates, Oosthuizen believes the combination of quality living, well-designed homes, and fringe benefits combine to offer a compelling value-proposition to investors.
All told, investing in residential estates provides good long-term value even if the property is sold within a short amount of time.
“Delivering on the fundamental needs of people, and doing so in green, open spaces with typically beautiful surroundings such as those offered in Port Elizabeth for example, mean one should give serious consideration to this segment of the market and its investment potential,” concludes Oosthuizen.