Advice and Opinion

Small homes are increasing in popularity with SA buyers

Smaller homes are increasingly popular among SA buyers – and not just because that’s all that’s available or all they can afford. Another major consideration is that such properties are increasingly proving to be savvy investments.

That’s the message, says Berry Everitt, CEO of the Chas Everitt International property group, to emerge from the latest FNB statistics detailing the rate of price appreciation among properties of different sizes – small homes of between 20 and 80sqm, medium-size homes of 80 to 230sqm and large homes of 230 to 800sqm.

These figures show that in the second quarter of the year:

– Small home prices were increasing at a rate of 12,5% a year (up from 12,4% a year in the first quarter);
– Medium home prices were rising at a rate of 6,6% (down from 7,5% in the first quarter); and
– Large home prices were growing by 4,6% a year (up from 1,4% in the first quarter).

“Similarly”, he says, “the latest Absa Housing review shows that among homes costing less than R4,4m, small homes showed a 9,9% year-on-year increase in the second quarter, medium-size homes a 6,1% increase and large homes a 5,6% increase”.

“One of the main reasons for these relatively high gains on smaller homes is the additional demand that has been coming from the increasing number of repeat buyers who are ‘downscaling’ to smaller homes in pursuit of lower operating and maintenance costs”.

“Add this to the traditional first-time buyer demand for such properties, as well as the slowdown in new housing delivery over the past few years, and you get supply shortfalls – and rising prices.”

Writing in the latest Property Signposts newsletter, Everitt notes that an increasing number of high-end buyers are also choosing smaller properties now for reasons of security, convenience and lifestyle – with the result that “small” is by no means always synonymous with “inexpensive” any more.

“For example, even tiny studios and apartments can now easily sell for more than R50 000/square meter if they are in the most fashionable and sought-after locations, and prices like that will quickly push up the averages.”

What is more, he says, further statistics suggest this is not just a flash in the pan. The small homes category has clearly outperformed the other two over the past 15 years – including the “boom” period from 2003 to the end of 2007, when falling interest rates actually prompted many homebuyers to upgrade, and spurred high demand for bigger homes.

Indeed, FNB says that between the first quarter of 2001 and the second quarter of this year, smaller homes showed a cumulative 375,3% increase in value; medium-size homes an increase of 349,8% and large homes an increase of 286,1%.

“In short, those who buy smaller homes can currently and for the foreseeable future expect much better returns on their investments than those buying medium or large properties – and that means that the traditional steps “up the property ladder” may soon have less to do with buying bigger and bigger homes than with buying more and more valuable small homes.”