Vacant land outperforms housing
08-02-2005
A recent study by property economists and valuers Rode & Associates has found that vacant land has grown faster than house prices over the past few years and seems set to continue to do so for some time to come.
Undertaken in the Camps Bay/Bakoven area, the study revealed that the price of serviced vacant erven in this exclusive area grew at a compound rate of 70% p.a. between July 2001 and January 2004. During the same period, house prices in this residential area grew at a compound 37% p.a., whilst Rode's House Price Index for upper-priced homes in Cape Town grew by “only” 29% p.a.
According to Rode & Associates CEO Erwin Rode, this phenomenon is likely to continue for some years to come, making serviced vacant land a particularly attractive investment option. Camps Bay is a special case in that the supply of erven is extremely limited while demand is growing apace. But in the wider metropolis this trend probably also applies — albeit to a lesser degree. One of the underlying causes, suspects Rode, is the fact that metropolitan municipalities have in recent years drawn "urban edges" on their borders. "The aim was to limit urban sprawl and encourage greater density of development within the current metropolitan boundaries", says Rode.
Although municipal authorities probably envisaged making more affordable, densely developed housing available to lower-income groups closer to the city centre, the move may ironically be having the opposite effect. "The property boom has resulted in demand for land far outstripping supply, creating a sharp upsurge in land prices. Combined with inefficiencies in delivery of infrastructure, it has created a long lag time for land to be subdivided and serviced. If the delivery situation doesn't improve, it might inadvertently fuel land prices to such an extent that it could result in housing within the current metropolitan confines becoming unaffordable to lower income groups."
Rode cites the moratorium on developments in the Parklands area north of Cape Town because of a backlog in infrastructure development, as an example of what is happening as a result of slow delivery and high demand in many urban areas. The cost of land is also leading to a decrease in the size of stands, with some developers limiting the size of erven for new housing developments to 300m², saying that bigger stands are pushing the price of developed properties beyond the reach of the average buyer. This trend is, however, to be welcomed in that it helps with the densification process.
The strong growth in serviced stand prices is spilling over to raw land, as the demand for land within metropolitan areas continues to increase.
