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Monday May 22, 2017

Smaller properties consistently performs better

There's good news for investors disheartened by property prices in South Africa. Smaller and more affordable properties are almost invariably the highest performers.

The latest statistics released by FNB show affordable properties in major metros are appreciating more than twice as fast as their high-end counterparts - a trend likely to continue as political turmoil weakens consumer spending power.

"Low and mid-range homes tend to appreciate faster than luxury properties on the residential market because of the consistently high demand seen for properties of this type," says Bill Rawson, chairman of the Rawson Property Group.

Smaller properties appeal to a much broader target market, attracting low-income earners, first-time buyers, professionals looking for low-maintenance lifestyles, and elderly people scaling down.

"Having such a wide pool of potential and repeat buyers ensures ongoing demand for these types of properties, regardless of economic conditions.

"If the economy is strong, and spending power is high, more first-time buyers and low-income earners feed into the market on this entry level.

"If the economy weakens and consumers are forced to cut back on spending, buyers who may have qualified for mid-range homes in better times, feed into this market from above."

High demand is inextricably linked to price growth and smaller homes have seen healthy appreciation even when other market segments have struggled.

While the outlook for the year is uncertain, Rawson predicts small properties in South Africa’s major metros will continue to see steady growth.

"Small homes have consistently outperformed larger properties for the past 15 years, during growth and recession periods alike," he says. "People will always need somewhere to live, and compact properties are going to be the most attractive and accessible option."

For investors, this could be a great opportunity, particularly when weighed together with the increased transfer duty threshold for properties under R900 000.

"This helps with the short- term affordability of an investment.

"It also opens the door for bigger investors to acquire a portfolio of small properties, avoiding the burden of transfer duty altogether, and capitalising on the superior growth potential of this market."

Property
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