Now is the time for investors and property buyers looking for newly constructed properties to purchase greenfield developments. As from here on out, it is going to get significantly more expensive due to soaring raw material prices. This is according to Chris Renecle, the MD at Renprop, a Johannesburg based developer and rental manager.

“On new builds or future builds there will be an inflationary increase so buy now at current prices. In the coming years, you will be paying significantly inflated prices,” says Renecle. He adds that more and more inflationary pressure is going to be brought to bear on new residential property builds in the future thanks to much higher input costs due to the fallout around the Covid-19 pandemic.

“Construction prices have already increased dramatically with raw materials prices, such as concrete and steel, all on the up. In fact steel prices have gone up some 50% in the last year, despite demand for new builds in the residential market being generally low,” says Renecle.

According to the CRB Commodities Index1, steel rebar prices were 60% higher on May 12, 2021, than they were the same time last year. They were sitting nearly 30% higher on June 27, compared with last year.

American-British information provider, IHS Markit2 predicts that steel prices will remain elevated and supply chain disruptions will delay price declines into the second half of 2021. Steel of course is just one of the raw materials that is expected to come under increasing inflationary pressure.

Renecle says there is also a shortage of bricks, aluminium, and glass because of production slowdowns due to the Covid-19 pandemic. All of this creates a price premium with the costing of all recent development tenders for Renprop being considerably higher than they were previously.

Mining vs construction

Another problem for the construction sector is that it is competing with the mining industry for raw materials such as steel.

The mining sector, which is experiencing a boom at the moment, is snapping up all the available steel that comes to market, while at the same time there has not been enough local steel production to keep up with the demand.

While there has been little activity as far as new developments in the general commercial property sector is concerned, residential real estate is still experiencing pockets of demand. 

“But even though demand isn’t where it should be at the moment, this won’t keep prices from rising,” explains Renecle.

His advice to those wanting to get into the residential market is to do so while they still can. This is particularly true for those wanting to purchase investment properties as expected higher prices are going to eat into any potential future returns.

As it stands, Renecle says the properties that are best placed at the moment to provide strong rental returns for investors are those priced between R800,000 and R1m, particularly two-bedroom, one-bathroom apartments with open planning living.

Renecle says this price range is the sweet spot at the moment, based on rental demand and generally provides the strongest rentals for investors.

New developments

Renprop, which recently introduced a rental guarantee product that delivers an 8% net return to investors that beats money markets, says there is healthy demand at two of its new developments, which are both in the R800,000 to R1m price range.

These include Fern Valley Apartments in Ferndale, which borders Bryanston, where two-bedroom units are selling from R799,000 and Brooke Manor in Rivonia, where the group is selling two-bedroom units from R979,000.

“Both new developments have rental guarantees in place, which offer comfort to investors in difficult times. This means the developer guarantees a rental income for an investor buying a property. Typically this is set between 6-12 months depending on the value of the property and mitigates the risk for investors wanting to enter the buy to let market.  At the same time investors do not have the hassle of finding their own tenants with Renprop securing them and making sure investors earn rental income from day one after transfer,” concludes Renecle.

References:

1. https://tradingeconomics.com/commodity/steel
2. https://ihsmarkit.com/solutions/steel-forecast.html

Owning a house comes with certain responsibilities that first time home owners might not be fully aware of. Doing your homework upfront is key to having the peace of mind that you can cope with the financial obligations of owning your own home, including related costs for maintenance, repairs, insurance, rates and taxes and so on, so that you can relax and enjoy your new home and the making of many happy memories.Cosmopolitan Projects, one of South Africa’s largest developers of affordable housing, offers a handy check list of essential tips associated with owning a new home:

Rates and taxes

On registration of the property in your name, you will be billed for rates and taxes by the council and will be liable for the account, regardless of whether you have moved into the property or not. You will need to open an account at the council offices in your name and pay a deposit. Make sure you provide a valid postal address and should you not receive the statement, it is your responsibility to rectify this with the council. If you have not been paying your rates and taxes, you will be in for a nasty surprise when you receive an accrued municipal account.

Repairs and maintenance

Once your house is registered in your name, you are responsible for all maintenance and repairs of your home going forward. Things such as painting, repairs of leaking taps and blocked drains, basin connectors, window handles, door locks, roof tiles, flashings and so on, are all affected by wear and tear and will require maintenance and repairs from time to time to protect the value of your asset.

What about cracks?

If you have bought a newly built home or a home off-plan, then the formation of “settlement cracks” for the first two years is completely normal in a new building. Fluctuations in temperature and rain and the sheer weight of the building will cause your foundation to settle and cause small cracks known as settlement cracks. Your house is designed with expansion joints to be flexible for these movements. After some time, the foundation will settle and less cracks will appear. The owner is responsible to fix and maintain these cracks a part of their home maintenance.

What happens if I find latent defects after I move in?

A latent defect is a fault in the property that could not have been discovered by a reasonably thorough inspection before the sale. As a consumer you have the right to give instruction to a developer to rectify latent defects as follows: within 12 months you can instruct the builder to repair roof leaks attributable to workmanship and design materials – damage caused by storms will not be covered by the developer, and likewise if any tiles were moved for repairs or work done after occupation the warranty is no longer valid. Homeowners can also instruct the builder to rectify major structural defects caused by non-compliance with regards to technical building standards within five years, while plumbing and electrical faults will be rectified within the first year of occupation.

Building Insurance

Home owners insurance protects the building and all its fixtures – essentially the brick structure that you will be moving into – against perils such as fire, flood, severe weather, theft and so on. It’s also important to remember the underlying premise of home owners insurance – it protects you for sudden and unforeseen loss or damage. Your insurance company will not cover you for gradual deterioration as a result of a lack of maintenance, often referred to as wear and tear, so make sure you budget for and conduct regular maintenance on your property and attend to any necessary repairs. The bank will also insist on you having this cover to protect their interest in the property until your bond is fully paid.

Contents insurance

Insure the contents of your home against loss or damage as a result of theft, fire, flood and extreme weather conditions. This insurance can be combined with your building and car insurance. Insuring with one insurer could lead to a cheaper, consolidated premium.

Being aware of and understanding the additional responsibilities that come with owning a house, and the expenses that come with them, is key to enjoying your new home, and not being overwhelmed by it.