It’s true, buy smaller if you want value appreciation
The “small” home is by no means always synonymous with “inexpensive” any more, according to Berry Everitt, CEO of the Chas Everitt International property group. He says an increasing number of high-end buyers are also choosing smaller properties now for reasons of security, convenience and lifestyle.
“For example, even tiny studios and apartments can now easily sell for more than R50,000/m² if they are in the most fashionable and sought-after locations, and prices like that will quickly push up the averages,” he says, noting that the small home category has outperformed the medium and large homes categories over the past 15 years, which means this is not short-term trend, but, instead, a phenomena that will continue.
According to FNB, between Q1 2001 and Q2 2016, smaller homes (20m² to 80m²) showed a cumulative 375,3% increase in value; medium-size homes (80m² to 230m²) an increase of 349,8% and large homes (230m² to 800m²) an increase of 286,1%.
Small home prices were increasing at a rate of 12,5% a year (up from 12,4% a year in Q1)
Medium home prices were rising at a rate of 6,6% (down from 7,5% in Q1)
Large home prices were growing by 4,6% a year (up from 1,4% in Q1).
Similarly, the latest Absa Housing Review shows that among homes costing less than R4,4m, small homes showed a 9,9% year-on-year increase in Q2, medium-sized homes a 6,1% increase and large homes a 5,6% increase.
“One of the main reasons for these relatively high gains on smaller homes is the additional demand that has been coming from the increasing number of repeat buyers who are ‘downscaling’ to smaller homes in pursuit of lower operating and maintenance costs,” says Everitt, noting that the traditional first-time buyer demand for such properties, as well as the slowdown in new housing delivery over the past few years, has led to supply shortfalls and rising prices.
“In short, those who buy smaller homes can currently and for the foreseeable future expect much better returns on their investments than those buying medium or large properties – and that means that the traditional steps ‘up the property ladder’ may soon have less to do with buying bigger and bigger homes than with buying more and more valuable small homes.”