May 9, 2013 10:57:36 AM

Home Prices High in Jam-Packed Mthatha

Topics: Residential, South Africa 0

Mthatha (formerly Umtata) in the old Transkei region is bursting at the seams, and urgently needs new housing development to alleviate stock shortages. The town benefits from strong spending power, explains Kim Thomson, owner of leading local estate agency Harcourts Mthatha, as about 80% of residents are government employees and the rest mostly professionals such as doctors and lawyers.

“It also serves a large rural community and lately, there has been a strong inflow of contractors working on various infrastructure projects. At the moment, for instance, there are 55 schools under construction in surrounding areas area and the majority of the contractors working on these are from elsewhere and require local accommodation."

However, she adds, Mthatha only has about 14 000 housing units, which can only satisfy only about 60% of current demand. “The town urgently needs at least 10 000 to 12 000 additional units but privately-owned development land is very scarce.

Most suitable land is either tribal or government land and developers shy away from the complex procedures required to rezone it.’

Consequently, the turnaround of properties is very slow because there are few suitable units available for owners to upgrade to, even when they are keen and financially able to do so. And the result of that is that new entrants to the market are now also having a tough time finding any homes for sale in their price range.

Thomson says prices have been rising quickly in response to the stock shortages and that buyers are now often willing to pay more than bank valuations if they have large enough cash reserves to make up the mortgage shortfall.

“So a home that would sell for about R1,4m in nearby East London, for instance, will easily sell for around R1,8m in Mthatha.”

The local entry level for free-standing homes is between R650 000 and R800 000 but, she says, such units are really very seldom available now, and the rental market is benefiting as locals who are currently “priced out of the market” are joining contractors in a scramble for short-term accommodation.

“A standard three-bedroom home with a single bathroom that would fetch R4000 a month in other centres can easily be let here for R6500 a month, while four-bedroom units in the popular Fort Gale area are achieving monthly rentals of between R8500 and R15 000.

“In addition, homeowners who have converted their outbuildings into cottages or built small flats on their properties are reaping the rewards now by letting them to contractors happy to pay as much as R5000 a month.”