Infrastructure The Key To Future Demand

Posted On Friday, 13 August 2004 02:00 Published by eProp Commercial Property News
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Adequate infrastructure or the lack of it  is shaping up as a critical factor in the future of the property market.

John LoosAdequate infrastructure or the lack of it is shaping up as a critical factor in the future of the property market.

Homeowners in high-demand areas are already all too aware of how much strain mushrooming new development can put on existing infrastructure. Small suburban roads become clogged with traffic, sewage systems overflow, and overloaded grids result in more and more frequent power and water cuts.

Indeed, several local authorities have had to implement a moratorium on new development until they, their ratepayers and would-be developers can reach agreement on infrastructure upgrades or a slower pace of development.

Such a moratorium in Hillcrest lasted five months while the eThekweni Municipality and developers negotiated a deal that will see them sharing R60-million worth of costs for the provision of new infrastructure with the KwaZulu-Natal provincial department of transport. In terms of this deal, developers have to pay a R10 000 surcharge for every new housing unit they build in the area.

In the booming Parklands area of Cape Town, new development has not been matched by an improvement in public transport and road access into the city, and capacity problems with basic services have now resulted in an imposition of development quotas.

In Bloemfontein, the city council has now placed a moratorium on all future development until at least September while it decides how to cope with a massive increase in demand for municipal services by land hungry developers and buyers.

In Johannesburg, the provision of electricity to new developments – and frequent power cuts in established areas – are becoming an ever-more serious problem, and in Pretoria's burgeoning "new east", traffic congestion and water outages clearly demonstrate the inadequacy of the current infrastructure in the face of massive housing development.

Small wonder, then, that there is growing concern among property market experts that a lack of infrastructural capacity could put a lid on growth.

Peter Smith, Western Cape regional executive of Nedbank Property and Asset Finance, said recently the decline this year in civil engineering infrastructural contracts - which are now back to the unsatisfactory level of 2002 after a remarkable pick-up in 2003 – was very worrying.

"If infrastructural services fall behind, the property sector is always handicapped."

On the other hand, says Absa senior economist John Loos, the inability of local authorities to keep up with the provision of infrastructure in new areas on the edges of cities should bolster demand in older suburbs where the existing infrastructure is underutilised, and could boost the rejuvenation of CBDs and "inner cities".

"Low levels of overall government expenditure on infrastructure related to housing, implying that in the case of new developments the road and related infrastructure must be privately financed, suggests that housing markets in areas with good existing infrastructure should remain strong," he says.

"Increasing traffic congestion, and a lack of viable public transport alternatives on the horizon, also suggest additional support for areas where public transport services do exist."

However, as prices rise, the lower degree of overall affordability will exclude an increasing number of potential homebuyers from the more expensive areas, stimulating demand in previously less-favoured areas.

What is more, says Loos, the local government infrastructure spending that does take place will for the foreseeable future be more focused on addressing infrastructure backlogs in townships and inner cities than on upgrading and expanding the suburbs, whose infrastructure is generally far superior due to historic legacies.

"This could further serve to increase the popularity of inner city suburbs and even townships, and to support the development of properly functioning property markets in such areas."

Now there's a big clue for developers and investors trying to figure out which areas will deliver the best returns in future. Just go where the roads (and drains and powerlines) lead you. 


Last modified on Monday, 04 November 2013 14:05

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