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.

Building activity is still under heavy pressure and will be in the short-term, but is forecast to start picking up towards the end of the year.

So says Colin Green, a director of Rabie Property Group, who added that the recovery will lead to stock shortages and an inevitable increase in property prices.

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 200 ha site in KwaZulu-Natal which will unlock 1500 residential opportunities and for the past three years with an application for a 65 ha 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.”

“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.”

Meanwhile, Jacques du Toit, property strategist at Absa, said conditions in the residential building and construction sector are forecast to remain tough in the short-term, with expectations of improved levels of activity towards the end of the year and into 2011.

Recently-released data by Statistics South Africa (SSA) for plans approved for new housing as well as new housing construction showed that the residential building and construction sector continued to experience some tough conditions up to mid-2010.

The real value of plans approved for new residential buildings dropped 5% year-on-year (y/y) to a level of R8,6bn in the first half of 2010 from R9,07bn in the same period last year. The real value in respect of new residential buildings constructed was down by 21,8% y/y to R7,15bn in the first six months of the year from a level of R9,14bn in the corresponding period of 2009. These real prices are calculated at constant 2005 prices.

With regards to the planning phase of new housing, reflected by building plans approved, levels of activity were very much under pressure in the first half of 2010, especially in the segments of housing less than 80sqm and higher-density housing (flats and townhouses). In the month of June, a further y/y decline was recorded in plans approved by local authorities for new housing, although this contraction was fairly small. - Eugene Brink

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