News headlines over the recent months have shown that the construction industry is under immense strain, with some of the biggest and most well-known construction companies in business rescue or liquidation proceedings.
This means that there will be fewer construction companies operating in the market with less development and the development that does happen, will come at a higher price. This is according to Chris Renecle, MD of Renprop, who believes that the decrease in construction companies operating in the market actually presents residential property investors with some good opportunities.
“When the market turns which we expect to happen sometime in the next 12 to 36 months, the inflation on construction will be above the normal rate of inflation by virtue of the fact that there are fewer building service providers able to cater to the growing demand.”
Renecle estimates that based on current market trends, only some of the current construction companies will be in business when the residential property market starts to improve. He notes that the subsequent inflation in building costs will obviously have a direct influence on the cost of any new residential developments brought to market.
While some investors may be hesitant to spend on residential property in the current economic climate, Renecle points out that the demand for property is still being fuelled by the many people continuing to move into the built-up areas in Gauteng – specifically Rosebank, and the northern Johannesburg suburbs such Rivonia, Paulshof, Douglasdale and the like.
“These people all need a place to live, and are therefore driving the demand for property,” he says.
“Even though residential property sales remain flat, and likely will for some time to come, the rental market is performing exceptionally well across all sectors,” says Renecle. “We are experiencing very low bad debt and defaults and have a very low level of vacancies across the board, from the lower end rental units right through to the luxury penthouses.”
Renecle points out that one of the best ways to generate a sound return on investment on a property is to buy low. “Current market conditions make this the ideal time to invest in a property that is already built or under construction in key areas close to business nodes, before prices begin to rise due to the inflation in construction costs and other factors. Investors will also benefit from the strong rental market.”
He believes that the strong rental demand, which is set to continue for the foreseeable future, will to drive the need for construction of more residential units, which will be coming at a higher price.