March 16, 2005

By Dirk De Vynck

The price of vacant land is growing faster than that of houses in some areas, a trend that could make housing within city limits unaffordable for many.

A recent study by property economists and valuers Rode & Associates in the Camps Bay/Bakoven area on Cape Town's Atlantic seaboard showed that the price of serviced vacant erven grew at a compound rate of 70 percent a year between July 2001 and January this year.

During the same period, house prices in this area grew at 37 percent a year, while Rode's house price index for upper-priced homes in Cape Town grew by "only" 29 percent a year.

Chief executive Erwin Rode said this trend was likely to continue, making serviced vacant land a particularly attractive investment option.

Camps Bay/Bakoven was a special case because the supply of erven was extremely limited while demand was growing apace, but the trend probably applied in the wider Cape Town metropolis.

Rode said he suspected that similar trends were found in other metropolitan areas. Jacques du Toit, a senior economist at Absa, said indications were that prices of vacant stands in major cities were growing faster than prices of houses.

He said the scarcity of serviced stands was becoming a structural rather than a cyclical phenomenon.

One of the underlying causes of the rally in the price of vacant erven, Rode said, was the fact that metropolitan municipalities had in recent years drawn "urban edges" on their borders.

"The aim was to limit urban sprawl and encourage greater density of development within the current metropolitan boundaries."

And although municipal authorities probably intended to provide cheaper, densely developed housing to lower-income groups closer to the city centre, the move might be having the opposite effect.

"The property boom has resulted in demand for land far outstripping supply, creating a sharp upsurge in land prices. Combined with inefficiencies in delivery of infrastructure, this has created a long lag time for land to be subdivided and serviced."

If delivery did not improve, he said, rising land prices could make housing within current metropolitan boundaries unaffordable to lower-income groups.

Rode said the cost of land was also leading to a decline in the size of erven for new housing developments, a trend he welcomed as it helped with the densification process.

Du Toit said other infrastructure constraints, such as traffic congestion and the absence of an adequate public transport system, as well as increasing urbanisation, added to the demand for residential properties in metropolitan areas.

Andrew Golding, the chief executive of the Pam Golding Property Group, said as a generalisation he agreed that prices of serviced vacant stands were rising faster than house prices, especially in highly sought-after areas.

Of the group's annual sales of about 15 000 properties, about 5 000 were serviced empty stands.