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Buy property close to work and save

22 Apr 2014

The high cost of petrol does not only diminish consumer bank balances but also influences where people choose to buy a home, says David de Waal, chief executive officer of Steeple Estate Agents.

Priced at R2.35 million, this five bedroom house in Boskruin is selling through Steeple. Click here to view.

He says ongoing increases in petrol price reduce the allure of areas that are far away from employment districts or amenities while nearer suburbs become more popular.

“The rental gradient (the concept that property prices decrease as the average commuting time/distance increases) is said to become more pronounced as transport costs increase.”

De Waal explains that property within the “concrete highway” that ring Johannesburg already sell at a premium and they expect that premium to increase further this year.

As a result, he says poorer households will have to search further away from CBDs for affordable property, and then will have to pay more for longer commutes.

From a public policy perspective, higher transport costs hurt poorer families more.

He points out that “poor” in this context applies to both a household's income and to where they live (whether owning or renting) because on a low income one can only afford to live in a less expensive property.

De Waal says according to a recent Coldwell Banker survey among its network of real estate professionals, 75 percent said the recent spike in gas prices has influenced their clients’ decisions on where to live, and 93 percent said if gas prices continue to rise, more home buyers will choose to live somewhere that allows for a closer commute to their work.

Furthermore, this survey notes that respondents indicated while the decision to buy property was tailored around the lifestyle needs of the buyer, nowadays buyers are taking fuel costs and commuting times into consideration when thinking of buying property.

According to De Waal, the petrol price is not the only component of transport costs, for example, in Gauteng, e-tolls are clearly an additional transport cost and properties in the suburbs where the only viable means of accessing the urban centre is via a tolled highway have become less attractive since the commuting cost has increased.

Motorists have been hard hit by increasing fuel costs not to mention that many households are financially under pressure as the cost of living itself is high.

According to De Waal, the petrol price is not the only component of transport costs, for example, in Gauteng, e-tolls are clearly an additional transport cost and properties in the suburbs where the only viable means of accessing the urban centre is via a tolled highway have become less attractive since the commuting cost has increased.

In Would you move house to avoid e-tolls? some Property24 readers say they will consider moving house to avoid e-tolls while others are against the idea of paying e-tolls altogether.

However, estate agents, particularly in Midrand report that the buyers target homes near the Gautrain bus routes, while sellers receive multiple offers that match asking prices as buyers are willing to pay a premium for suitable homes with demand for property high in areas such Kyalami, Halfway Gardens and Vorna Valley.

Click here to read more about property and tolls.

De Waal says the effect of changing petrol prices on property values is similar to the imposition of a toll because of the high transaction costs associated with selling a property, people will initially make other changes to their lifestyles such as trying alternative routes, sharing vehicles or using public transport more.

“But over time the higher petrol prices and tolls will result in changes in property values as the changing demand takes effect.”

Priced at R1.525 million, this three bedroom townhouse in North Riding is selling through Steeple. Click here to view.

Asked about property on the concrete highway, he says they performed a comparison of suburbs just within the concrete highway to those literally across the highway for Johannesburg's northern suburbs.

To get the average price for a suburb, they took the price of the listing that was in the middle of the numerically sorted list of properties for sale in that suburb as per Property24 (so, for example, if there were 19 properties for sale in Suburb A, then they took the average price for a property in Suburb A to be the price of property number 10 when they are sorted from highest price to lowest price. In statistical terms, this number is called the median).

However, he says it is not possible to do a perfect comparison, but the results were revealing. For example, if you compare Randpark (R1.7 million) to Randpark Ridge (R1.65 million), or Malanshof (R1.495 million) to Bromhof (R1.295 million), Ferndale (R1.7 million) to Olivedale (R1.165 million), Bryanston (R5.4 million) to North Riding (R1.025 million) or Douglasdale (R1.295 million) or Magaliessig (R1.897 million), or Rivonia (R2.6 million) to Paulshof (R1.08 million) or Sunninghill (R1.549 million), in every case the suburb “inside” the highway has a higher “average” property value than the adjacent “outside” suburb.

“So even though these suburbs vary in average property values or in the ages or income brackets of the residents, there is a consistent relationship that the “inner” suburb has higher valued properties than the “outer” comparison suburb, which is a confirmation of the “rental gradient” concept,” he says.

They expect rentals to show a similar pattern to property sales.

A three bedroom townhouse in Douglasdale is selling for R1.85 million through Steeple. Click here to view.

He says rising fuel costs and e-tolls increase transport costs between home and work/school, and in time, people will want to move closer to work (or to convenient public transport access points such as Gautrain or Metrorail stations) to reduce the transport costs they pay. 

So properties that are closer to business nodes or quick public transport will be in greater demand and their prices will increase more while properties further away will be less in demand and their prices won't increase as much (or at all). 

“The overall effect is that increasing transport costs will not affect all properties equally - some will benefit and some won't.”

On the market property prospects, he says major metros are reasonably buoyant but although there is demand from buyers, it hasn't really translated into significantly increased prices.

Outside of the urban areas the market is anaemic, noting that there isn't much interest in small towns and fewer people are looking to buy holiday homes than in the past, he adds. - Denise Mhlanga

About the Author
Denise Mhlanga

Denise Mhlanga

Property journalist at property24.com

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