Undervaluation of Real Estate Properties in Disadvantaged Areas in the City of Johannesburg

• Published date: 01 June 2016
• Author: Mahlape Mohale,Hermanus Stephanus Geyer
• DOI: http://doi.org/10.1111/saje.12097
• Date: 01 June 2016

UNDERVALUATION OF REAL ESTATE PROPERTIES IN

DISADVANTAGED AREAS IN THE CITY OF JOHANNESBURG

MAHLAPE MOHALE

†,

HERMANUS STEPHANUS GEYER

,

JR.

††

AND HERMANUS STEPHANUS GEYER

*

Abstract

Since the end of apartheid, the growth of the real estate market in the historically disadvantaged

residential areas of South African cities has been quite remarkable. Transactions in this property

market, which can take on several forms of exchange of ownership or occupation, in many respects

defy de Soto’s definition of dead capital. Yet, despite this booming market, large parts of these

residential areas are still regarded by local government as having no capital value. Although the

titling of properties cannot be regarded as the only or even the main immediate solution to

alleviating poverty within these communities, it certainly presents a real and immediate potential

opportunity to many of them. This paper attempts to determine the potential size of this market.

It starts with perspectives on land values, the property market and the titling of informal properties

and examines different methods used in the evaluation of properties both in the formal and

informal residential sectors. Drawing on empirical literature and research findings, the paper

makes an attempt at establishing the form and value of what is regarded as the degree of

undervaluation of real estate capital by the local authority.

JEL Classification: R31

Keywords: de Soto; dead capital; informal housing; hybrid housing; real estate valuation

1. INTRODUCTION

The concept dead capital, introduced by de Soto in the 1980s, asserted that housing is dead

capital when solely regarded as shelter, whereas the potential utility and investment

potential of the property as an asset is overlooked. He found a strong correlation between

the levels of informal housing, poverty and the absence of functional real estate markets in

the developing world (de Soto, 1989; 2000; 2002). Informal housing, according to him,

represents capital that, if mobilised for productive use as capital assets, could lead to a

significant reduction in poverty levels. Although the causes of dead capital are often

complex and culturally unique, historically informal property markets have experienced

episodic instances of abuse and mismanagement and slow growth rates due to insecurity of

tenure arrangements (Gilbert, 2000; 2002; 2010; Bourbeau, 2001; Ahiakpor 2008).

However,many studies confirm the potential contribution that informal real estate markets

provide in not only mobilising the capital asset value of these properties among

economically marginalised communities, but also in improving the living conditions

through the active personal investment of the urban poor in their housing capital (Libecap,

2001; Rosenberg, 2002; Goodspeed, 2005; Solimano, 2006; Payneet al., 2008; Geyer and

* Corresponding author: Director, CRUISE Geography, University of Stellenbosch, Chamber of

Mines Building, Merriman Street, Stellenbosch 7602, South Africa. E-mail: hsgeyer@sun.ac.za

†Statistics South Africa, Pretoria, Gauteng, South Africa.

†† Stellenbosch University, CRUISE Geography, Stellenbosch, South Africa.

South African Journal of Economics Vol. ••:•• •• 2015

© 2015 Economic Society of South Africa. doi: 10.1111/saje.12097

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C2015 Economic Society of South Africa. doi: 10.1111/saje.12097

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South African Journal of Economics Vol. 84:2 June 2016

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