Market analysis shows that buyers can get bigger gains from smaller homes

SMALLER homes are increasingly popular among SA buyers – and not just because that’s all that’s available or all they can afford.

Another major consideration is that such properties are increasingly proving to be good investments.

That’s the message, says Berry Everitt, chief executive of the Chas Everitt International property group, to emerge from the latest FNB statistics detailing the rate of price appreciation among properties of different sizes – small homes of between 20 and 80m medium homes of 80 to 230m2 and large homes of 230 to 800m

These figures show that in the second quarter of the year small home prices were increasing at a rate of 12.5 percent a year – up from 12.4 per- cent a year in the first quarter. Medium home prices were rising at a rate of 6.6 percent compared to 7.5 percent in the first quarter, and large home prices were growing by 4,6 percent a year compared to 1.4 percent in the first quarter.

Similarly, he says, the latest Absa Housing review shows that among homes costing less than R4.4m, small homes showed a 9.9 percent year-on- year increase in the second quarter, medium homes a 6.1 percent increase and large homes a 5.6 percent 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.

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

Everitt says that an increasing number of luxury home buyers are also choosing smaller properties now for reasons of security, convenience and lifestyle. The result is that small is by no means always synonymous with inexpensive.

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

What is more, he says, further statistics suggest this is not just a flash in the pan. The small homes category has clearly outperformed the other two 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.

Indeed, FNB says that between the first quarter of 2001 and the second quarter of this year, smaller homes showed a cumulative 375.3 percent increase in value; medium homes an increase of 349.8 per- cent and large homes an increase of 286.1 percent.

“In short, those who buy smaller homes can now expect much better returns on their investments than those buying larger properties. And that means 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.”