Development constraints will push up prices
The development sector is going to be hard-pressed to respond rapidly to improved demand for new commercial or residential stock when the market picks up which will lead to stock shortages and an inevitable increase in property prices, warns Colin Green, a director of Rabie Property Group.
He says the current downturn in the global property markets has seen very few new developments coming to the market. This together with the new stricter credit laws and uncertainty with regards the true state of the economy means that developers have been focusing on survival with little appetite or optimism for the future.
“During the past few years developers’ main challenges have been to reduce existing stock levels and get rid of debt. The acquisition of new land has been the exception rather than the norm with much fewer rezoning applications being submitted to local authorities, particularly when measured against the boom years of the mid 2000s.”
Green says that traditionally there has been a shortage of zoned land with unpredictable delays being experienced in the rezoning process aggravated by cumbersome environmental legislation.
“One would expect that with significantly fewer new applications being submitted to local authorities they would be dealt with efficiently and timeously. However, the opposite is true. In the early 2000s rezoning applications took between 18 months and three years depending on the size and complexity of the application. These days a simple application is taking about three years with the more complex applications taking double that. These delays can largely be ascribed to a lack of skills within the public sector,” says Green.
He said for the past four years Rabie had been busy with a rezoning application for a 200hectare site in KwaZulu Natal which will unlock 1500 residential opportunities and for the past three years with an application for a 65ha site in Potchefstroom which will provide 700 residential opportunities. Both of these still had some way to go before the correct rights are in place allowing development to get underway, he says.
Green warns that when the market recovers it will be too late for developers to start acquiring land without the desired development rights already in place.
“By the time a developer goes through the reapplication process they might well have missed the window of opportunity in terms of the property cycle.”
Rabie Property Group, he said, was extremely fortunate that Century City, its 250ha mixed use development in Cape Town, had a basket of residential, commercial, leisure and retail rights in place allowing them a great deal of flexibility to adapt and respond quickly to changing market conditions.
“The different sectors of the property market don’t all go through the same property cycle at the same time so having a basket of mixed rights enables us to switch from residential to commercial or vice versa depending on where they are in the property cycle.”