Small homes are offering the largest gains

Private Property South Africa
Private Property Reporter

Who said size doesn’t matter? Smaller homes are proving to be savvy investments, with greater returns in comparison to medium or large sized homes.

The latest FNB statistics measuring the rate of price appreciation among properties of different sizes, reveal that smaller sized homes are outperforming medium to larger sized homes.

According to Berry Everitt, CEO of the Chas Everitt International property group, the latest statistics indicate that smaller homes are increasingly popular among South African buyers, not just for being an affordable option but more so for being a great financial investment.

The FNB report measured homes that were the following sizes:

  • Small homes of between 20 and 80sqm
  • Medium-size homes of 80 to 230sqm
  • Large homes of 230 to 800sqm.

The results for the second quarter of the year show:

  • Small home prices were increasing at a rate of 12.5% a year (up from 12.4% a year in the first quarter).
  • Medium home prices were rising at a rate of 6.6% (down from 7.5% in the first quarter); and
  • Large home prices were growing by 4.6% a year (up from 1.4% in the first quarter).

Similarly, the latest Absa Housing review revealed that houses which cost less than R4.4 million had the following year-on-year increase in the second quarter:

  • Small homes showed a 9.9% year-on-year increase
  • Medium-size homes saw a 6.1% year-on-year increase
  • Large homes showed a 5.6% year-on-year increase

According to Everitt, one of the main reasons why smaller homes are showing higher gains is due to the additional demand from the growing number of repeat buyers who are opting to downsize to smaller homes, in pursuit of lower operating and maintenance costs.

“Add this to the traditional first-time buyer demand for such properties, as well as the slowdown in new housing delivery over the past few years, and you get supply shortfalls - and rising prices” says Everitt.

Everitt notes that security, convenience and lifestyle are additional factors influencing the growing number of high-end buyers who are choosing to purchase smaller properties, with result that small is no longer synonymous with cheap.

In effect he adds that “small” is no longer a synonymous meaning for “inexpensive” any more.

“For example, even tiny studios and apartments can now easily sell for more than R50 000/square meter if they are in the most fashionable and sought-after locations, and prices like that will quickly push up the averages” says Everitt.

Further statistics indicate that the small homes category has outperformed the other two categories over the past 15 years - including the “boom” period from 2003 to the end of 2007, when falling interest rates actually prompted many homebuyers to upgrade, and spurred high demand for bigger homes.

According to FNB, from the first quarter of 2001 up until the second quarter of this year each category has had the following cumulative increase in value:

  • Smaller homes showed a cumulative increase in value of 375.3%
  • Medium-size homes saw an increase in value of 349.8% and
  • Large homes showed an increase in value of 286.1%.

“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” concludes Everitt.

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