RESIDENTIAL LAND SCARCITY WORSENING

Absa’s Residential Property Perspective for the third quarter of 2007 released today highlighted the scarcity of residential land currently facing the country that has intensified since 2006 on the back of a range of demographic, economic, socio-economic and new housing construction factors.

Population growth population density especially in the metropolitan areas has increased significantly during the past five years, mainly driven by the process of urbanisation. Formal sector employment has increased by 16,5% in total since 2000, with 71,4% of all new jobs created over this period being in the formal sector in the major metropolitan areas. Growth in real household disposable income was strong during this period, increasing to 6,7% in 2006.

These developments caused the demand for and construction of new housing to show substantial growth, which led to strong demand for and an increasing scarcity in residential land. This resulted in land prices rising significantly, causing land to become less affordable, and the average stand size dropping to levels not seen in the past.

It also caused an increase in the number of “brownfield” developments, subdivisions of large stands in older neighbourhoods, and higher-density housing developments such as multi-storey apartment buildings. Vacant areas of land that were not regarded as prime sites for residential development in the past are being developed, especially in established and popular urban areas.

Article from Property24

Interest rates hike on the cards for August

The South African Reserve Bank (SARB) may be forced to hike interest rates again in August. Consumer price index (CPI) figures came in at 6.4% in June, unchanged from May’s figure. That exceeded the Reserve Bank’s 3 to 6% target and market expectations of 6.3%.

A 2.5kg bag of maize meal was just over R8 this time last year but now it is almost R11. Meat is no longer affordable to many. Food inflation jumped to 9.5% from 8.7% annually in May.

High oil prices and the weak rand saw the petrol price increasing several times this year.

“We remain sanguine that the Reserve Bank would take notice of the pressures that are persisting and in light of that, a 50 basis point increase would be something prudent to do at this stage,” says Kabelo Masike, an Eskom economist.

It is not the first time that high food prices have been of concern. In 2002, the government formed a Food Monitoring Committee to investigate the reason behind soaring food prices. Two months ago, calls were made for a similar investigation. Whilst answers are sought, the only hope is the rand’s recent strength. If it remains strong, it could help ease inflation in the coming months.

Industrial property sees all the action

Commercial building cost inflation slowed to 16 percent year-on-year by the first quarter of the year, from a peak of 37 percent in the third quarter of 2005, the FNB Commercial Property Finance Residential Building Cost Index showed on Thursday.

The index reflects the average building cost per square metre, as priced by building contractors when winning tenders. As such, it reflects the combination of contractors’ input costs, their own pricing power which varies over time due to market conditions, and the standard of the property developments in question.

A mild decline in commercial

The mild decline in building cost inflation in the commercial property sector should perhaps not be too surprising. Interest rates have been rising, and according to the Investment Property Databank, 2006 saw a mild decline in total commercial property returns from a peak of 30.1 percent in 2005 to 26.7 percent, said John Loos, FNB’s property strategist.

“This may well have exerted some mild downward pressure on the growth in pricing power of contractors,” he said.

Moving into the sub-sectors of commercial property, the relative building cost inflation rates of the industrial, office and retail property sectors at present appear somewhat related to the relative strength of these property sub-sectors, he said.

The place where the action is

Industrial property, the place where all the action is, showed first quarter year-on-year building cost inflation of 40.8 percent. This sector has shown a steady surge in building completions in recent times, has very low vacancy rates — and according to the IPD — showed the highest total return of the sub-sectors in 2006 to the tune of 31.1 percent. The sector overtook the retail property sector as the star performer back in 2005, Loos said.

Retail building cost inflation has tapered off for some time, but still showed a respectable 17 percent year-on-year inflation rate in the first quarter.

“This sub-sector is believed to be leading the commercial property cycle, and although total returns for retail property were estimated at a still-healthy 27.4 percent, it is believed that there will be further decline this year and next on the back of a slowing consumer demand growth rate,” according to Loos.

Office sector lags behind

He noted that office space building cost inflation slowed to a mere 1.1 percent year-on-year in the first quarter.

“The office sector is the laggard in the commercial property cycle, and continues to surprise on the downside. Vacancy rates have been declining for some years, and on a national basis (The South African Property Owners Association) estimates of A and B-grade office vacancies are just above five percent,” he said.

However, returns are the lowest of the three major sub-sectors at 24.5 percent in 2006, and building activity has not yet surged, as one would anticipate it to do in the near future, Loos said.

Article from I-Net Bridge

Panel suggests foreign land-ownership moratorium

Panel suggests foreign land-ownership moratorium to ensure the country’s citizens are not excluded from the real-estate market.

South Africa should consider a moratorium on foreign land ownership as an option to ensure the country’s citizens are not excluded from the real-estate market, a government-appointed advisory panel recommended.

Other proposals included in the panel’s final report, published by the Cabinet yesterday, include enabling foreigners to lease, rather than buy, real estate and requiring ministerial approval for the sale of specified categories of land.

“The final policy will be approved by Cabinet after the public has commented on the report,” the government said in a statement yesterday.

Article from Moneyweb