Determinants of real estate supply and demand in the GCR
- Dr Koech Cheruiyot
The health of any region depends, among other things, on the health of its real estate sector. As evidenced by the global financial crisis of 2008, crises in the macro-economy are sometimes triggered by imbalances in the real estate market. These imbalances could be overbuilding in the office sector, or housing deficits that lead to skyrocketing rents and house prices. A typical cause of such imbalance is the absence of rigorous analysis of the determinants of demand and supply of different real estate asset classes.
South Africa is characterised by the absence of credible research into the determinants of demand and supply in its real estate markets, especially at the regional and metro level. As a result, significant real estate decisions, including development feasibilities are based on conjecture, and critical market parameters are only short-term estimates. Examples of consequences are the oversupply of the hotel market after the 2010 World Cup and failures in the retail sector.
The importance of the study is that since the GCR, and in particular the three metros, constitute the biggest and most sophisticated real estate markets on the continent. A study that sheds light on the parameters that underpin supply and demand of the different asset classes would facilitate better forecasting of future conditions in the market. Ultimately, a better basis for real estate decision-making will minimise risks that face GCR economy.
The study explores: (a) macroeconomic factors that affect all asset classes in the 2014/15 financial year; and (b) macroeconomic factors that affect supply and demand trends in specific asset classes – residential, retail, office and industrial – in subsequent financial years.
A Data Brief is currently being written, which should be launched during 2015.