Land scarcity has become more of an issue than building costs, says First National Bank (FNB) property economist John Loos. "I don't think we can begin to quantify the effect that previously disadvantaged individuals entering the market will have on property prices. I think it will be huge."

The result of this is that property prices will become increasingly determined by land prices rather than building costs because of supply shortages in council-serviced property zones.

At a conference held by the Institute for International Research in Johannesburg yesterday, Loos also forecast a rise in building costs as a result of the skills shortage in the sector, saying that this was not uncommon.

"It's a fallacy that if we don't have the skills in place we can't grow (the sector). Booms don't work like that. Demand drives a boom." Skills and capacity increases occurred to meet increases in demand - not the other way around. Economies around the world did not normally have a surplus of capacity available before a boom took place.

When asked about the involvement of banks in low-income areas and townships, Loos said that in the past, there had been a problem with the functioning of certain markets, such as the township market, which may have hindered banks' activities. He cited the example that until recently, many townships did not have estate agents to service sales in these markets.

But he said township markets were normalising, which would make it easier for banks to use standard lending criteria when assessing residential financing for clients in these areas.

According to the property barometer released by FNB last week, township property was in great demand with about seven potential buyers for each property available in Gauteng; eight buyers for each property in Cape Town; and 16 for each property in Durban.

Standard Bank senior manager of structured finance, Kevin Buchler, said there had been a great deal of initiative across all four of the major banks (Absa, Nedbank, Standard Bank and FNB), to look at the informal market in accordance with the property charter. "The budgets are huge for us to achieve this," said Buchler, "but the biggest problem is the stock shortages in serviced land."

He said zoning applications to get services in areas that did not have them could take up to 24 months to process. This along with the environmental impact studies that needed to be completed before development could occur, created serious challenges for developers before they even began building.

Buchler said building costs were also a concern for developers. Raw materials such as concrete and bricks were now about 60% of the total construction budget, and finishings such as tiles and counter tops made up 40%. In the past the opposite was true, he said, citing local demand pressure for raw materials and increased imports for finishings as the main reason for this shift. South Africa is also rumoured to be running out of cement and bricks and might have to start importing both products to meet its major infrastructure commitments, like the 2010 Soccer World Cup.

Daily Dispatch