+2008…

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Dear Clients & Colleagues

Welcome to our 5th quarterly newsletter. We hope you find this newsletter as informative as to the latest property industry trends, news & opinions. In addition, this edition outlines projects recently undertaken by mfs Developers & Quantity Surveyors CC.

In this edition will continue to look at the National Credit Act and the impact it has had along with the interest rate increases, on the property market. In addition, we briefly overview where the construction industry is at with regards to the cost increases that are plaguing all aspects of our economy.
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QS…

One of our projects currently in progress is for Greatmore Studios, who we have assisted in the past on a “pro bono” basis. “Dependent on funding and good will, Greatmore Studios exists to encourage interaction and artistic exchange between artists in these spaces. It is hoped that creativity will be liberated from preconception and social engineering” - www.greatmoreart.org. For their latest upgrade, was approached by managers of these art studios situated Woodstock to assist them on the alterations and additions to create working space for artists and a gallery were functions could be held at the same time. We advised the client on the best possible way to maximise their space and we are currently project managing the development.

Greatmore studios in progress…

Another of our projects in progress is House Stern. This is a new upmarket residential development situated in the Hermanus Golf Estate. We are currently overseeing the project, acting on behalf of Ferreira da Silva & Johnson Architects as well as providing project cost valuation services.

House Stern In progress…

House Park is a double storeyed alteration and additions project situated in Upper Newlands, Cape Town. We have been appointed as Quantity Surveyors with LFS Architects as principal agents on the project. Fraser Construction, was appointed as contractor  in October 2007, with completion due by the end of August 2008.

House Park In progress…

Over and above these projects, we have been very busy in the past few months, including preparing cost estimates for residential developments such as 104 Waterkant, 145 Waterkant, 10 Loader street and 3098 Bo Kaap, just to mention a few. In addition, we have a few projects that have just commenced on site. These include Benevelli Benguela Cove in Hermanus and 42 Woodside Road. We will review these projects in future newsletters and fill you in on the potential work we are pursuing in Mozambique.
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Property News…

The property market:

The country has witnessed a steady decline in the property market since the beginning of the year. This is primarily because of inflation, interest rates hikes, the general slowdown in the economy, and the National Credit Act (NCA). However, some industry experts do see the light at the end of the tunnel: Dennis Dykes, Nedbank’s chief economist reckons that the housing market will stabilise in 2009 and going into 2010. Bill Rawson, Chairperson of Rawson properties advises prospective home owners by saying,

“ now is the time to buy because unit sales are unlikely to go much lower than their current level and once they begin improving house prices will respond.” He continued by saying, “either way, if you need to sell or buy, stay in the market as it would be a real gamble and very unwise to sell and then wait for prices to fall further before buying again.”(www.iafrica.com 30/07/2008).

After 13 months since launching the NCA, real estate agents and relevant property stakeholders see the introduction of this act fulfilling its purpose, by saving many consumers from spending more than they can afford, particularly in light of the recent interest rate hikes. Rob Lawrence, Business Development Manager of Rawson Properties says the current interest rate increases have had a high impact on the decision by the prospective buyer, on whether to buy or not and what property to buy. Mr Lawrence gives us this example, if a prospective buyer has a surplus of R 10 000, 00 per month and the interest rate is 13%, he/she could afford a R 900, 000.00 bond. If the same prospective buyer is faced with the current 15.5% interest rate, he/she can now only afford a R 750 000.00 bond. (www.rawson.co.za).

Looking to the near future, Absa forecasts house price growth levels of above 10% from 2010. “ Nominal house price growth is forecast to be significantly lower in 2008 and 2009 compared with recent years, with prices set to decline in real terms this year and next year.” (Absa’s second quarterly housing review). According to the review,

“in the luxury segment of the market, house prices increased by a nominal 6,7% y/y to about R4,2 million in the first quarter of 2008 (7,6% y/y in the preceding quarter)". Relative to inflation, this does represent a drop in value of property, but the actual prices are themselves not dropping.

So its not all doom and gloom, despite the pinch being felt by property owners and prospective buyers.

Construction prices:

“The FNB CPF Residential Building Cost Index for the fourth quarter of 2007, constructed by Industryinsight, indicates still further slowing down in residential building cost inflation, the fifth consecutive quarter of declining year-on-year inflation following a significant surge in building cost pressures last year” according to John Loos, FNB property strategist.

More recently it has been reported that there has been a further “mild slowdown in residential building cost inflation after a mild rise in the first quarter” according to FNB Commercial Property Finance’s (CPF) Residential Building Cost Index for the second quarter of 2008. The “index reflects the average building cost per square metre, as charged by building contractors when winning tenders in the formal residential property sector. It excludes affordable and so-called “RDP” housing. The average building cost per square metre was measured at R5,877 for the second quarter.” For further information, read the full article at (http://property.za.msn)

Construction costs are therefore still increasing, but at a much slower rate than in the recent past, particularly the 38.8% peak reached in the third quarter of 2006. In the same article John Loos states,

“for the first five months of 2008, the number of residential square metres completed fell by –10,7% while the number of square metres of plans passed fell by –21,%”. This is most likely attributed to the slow down in the property industry as a whole, due to the NCA, interest rate hikes etc. as discussed above.

So – now is a good time to build (and to buy)…
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Kind Regards

Developers & Quantity Surveyors CC