Now is the time for new development, says Geffen

The residential property market in Johannesburg is a bit like a hot air balloon tethered to the ground at the moment – and the only thing that can really set it free to fly is lots of new development.

“Sales volumes should be soaring as demand from buyers is huge,” says Lew Geffen, chairman of Sotheby’s International Realty in SA, “but there is shockingly little for them to buy, particularly in the upper sector, because existing homeowners are not upgrading and so not releasing stock into the market.

“This is especially true in the more established, central suburbs, where owners now often tell us they would much rather renovate or add to their current homes than buy a bigger or more luxurious property.”

At the same time, he says, the shortage of supply is causing a “price push” that is giving existing owners even less incentive to sell. “Prices are currently about 35% ahead of where they were after the 2008/09 recession and starting to move up even faster now, so many owners who bought in the past five years are happy to hang on now and watch their investment grow very nicely.

“In our own group, for example, we have seen the average home sale price rise by more than 14% in the past 12 months to R3,2m, following an 8% rise in the previous year. And yet we have buyers literally queuing up for anything that does come on to the market in these areas, which have come back into vogue in recent times as people have grown increasingly weary of long commutes to outlying suburbs and traffic congestion.”

In fact demand is such, Geffen says, that buyers are also currently pouncing on any new development that comes on to the market in a sought-after area, even though the homes in these developments generally come at a premium of about 30% compared to existing homes.

“Upmarket units in Johannesburg are currently selling at around R30 000/sqm, compared to around R18 000k/sqm five years ago, but buyers are scrambling to buy them off-plan and in many instances even before the project can be officially launched. We are also starting to see investors come in and buy two or three units at a time.”

This has certainly been the case, he says, at Le Cirque, a 450-unit super-luxury apartment development in Illovo which is already more than 60% sold out just a few weeks after being launched.

“Consequently I would like to say to developers that their time has clearly come again – and that those who are able to get new projects ready and out of the ground in the next three years are really going to be in the pound seats.”

* Originally published 12 February 2015