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A Fin24 user writes:
I am considering going into small-scale property development and am looking for advice.
I intend to enter the market by buying stands which are serviced already and have approved plans. I would then build the houses and sell on to the middle-income market.
Erwin Rode, property economist and valuer at Rode & Associates, answers:
From your letter, I gather that you want to start buying serviced residential stands, speculatively build on the properties and then sell the houses to middle-income households.
The market for property development in general is still uncertain, given weak demand as consumers remain under pressure. I expect they will come under even more pressure in years to come. The risks, therefore, remain high.
However, given the current circumstances, the most promising segment is for completed houses below R500 000. This is because developers ignored this segment, which had paper-thin margins, during the boom years. This resulted in a backlog.
In addition, government is putting moral pressure on the bank sector to finance property in this segment (the so-called gap market).
In the current phase of the cycle, and given that you are new to the industry, I would propose that you buy and develop only one property at a time. However, it may be difficult to find single stands which will be cheap enough to build houses for the gap market.
The best strategy would be to buy single stands from erf manufacturers or township developers who may be experiencing liquidity problems.
Gap market stands are usually established in huge groups to ensure benefits of scale.
- Fin24
I am considering going into small-scale property development and am looking for advice.
I intend to enter the market by buying stands which are serviced already and have approved plans. I would then build the houses and sell on to the middle-income market.
Erwin Rode, property economist and valuer at Rode & Associates, answers:
From your letter, I gather that you want to start buying serviced residential stands, speculatively build on the properties and then sell the houses to middle-income households.
The market for property development in general is still uncertain, given weak demand as consumers remain under pressure. I expect they will come under even more pressure in years to come. The risks, therefore, remain high.
However, given the current circumstances, the most promising segment is for completed houses below R500 000. This is because developers ignored this segment, which had paper-thin margins, during the boom years. This resulted in a backlog.
In addition, government is putting moral pressure on the bank sector to finance property in this segment (the so-called gap market).
In the current phase of the cycle, and given that you are new to the industry, I would propose that you buy and develop only one property at a time. However, it may be difficult to find single stands which will be cheap enough to build houses for the gap market.
The best strategy would be to buy single stands from erf manufacturers or township developers who may be experiencing liquidity problems.
Gap market stands are usually established in huge groups to ensure benefits of scale.
- Fin24
