Major drop in residential developments: a boon for landlords

Posted On Thursday, 15 December 2011 02:00 Published by eProp Commercial Property News
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In the residential property sector a major highlight is the fact that in 2011 new developments dropped off by some 70% compared to the levels of 2006/2007

Bill Rawson

According to Bill Rawson, chairman of Rawson Properties, in a staff briefing in which he covered many factors affecting the residential property sector in 2011:

“Many developers took a hiding in 2011,” said Rawson, “and some big names that were prominent throughout the greater Cape Town are now either temporarily or permanently out of action.”

This, he said, was due not so much to a lack of demand which, at least in the lower middle and lower brackets, is still strong, but to bank finance difficulties.

“There are,” he said, “two sides to this:  many developers can now no longer get finance unless they have the resources to mount massive sales campaigns and to achieve 70 to 80% sales prior to their bond application being approved – any many potential buyers (some of whom previously could get finance for two or three buy-to-let opportunities) are now finding that they no longer qualify for loans under the National Credit Act criteria as implemented by the banks.”

A further obstacle in the developers’ path, said Rawson, is the fact that in 2012 and thereafter new developments will have to conform to a list of “green” building regulations which, although highly commendable, will add a further 15% to the basic costs.  These, he said, will affect the glazed areas (which now will have to be shaded or be more effective), roofs and slabs (which will have to better insulated) and energy supplies, which will increasingly become solar and wind powered.

“It has to be recognised,” added Rawson, “that the already serious shortage of housing is being made worse by the slowdown in delivery.  In this context, the banks’ “new, more reasonable approach” to lending needs to be re-evaluated by the State, who, some people think, is not placing housing as high on their agenda as it should be.”

The only people benefitting from the current situation, added Rawson, are the landlords who are now finding that improved demand for dwindling stock enables them to raise rents.

Asked how it is that in this difficult situation Rawson Developers were able to report recently that they have projects in the pipeline for three years, Rawson said that they had had the foresight to acquire land well ahead of their work load in areas ripe for new projects – and, even more importantly, he said, they have been able as a result of having their own construction teams to pare down building prices and work only on a building (not a building and development) profit.

“In today’s market,” he said, “the independent developer employing an independent contractor simply cannot come out in the black unless he is able to offer something very special such as a perfectly positioned site.”


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