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Johannesburg - The start of gradually rising interest rates are expected to slow down growth in residential demand in the near term, but in a moderate way, John Loos, FNB's household and property sector strategist, said on Monday.
However, he expects that stock constraints will remain significant and this will have to be alleviated by some moderate growth in residential building activity.
"The financially constrained household sector is expected to sustain the broad trend towards a smaller average size of residential building completed, a broad trend since 2007," said Loos.
Such financial and affordability constraints are expected to continue to positively impact flats and townhouses as property category, which has increased its percentage of total completions from 24% in 2011 to 34% for 2014 to date.
FNB Estate Agent Surveys, which pertain largely to the existing home market, have been showing a mounting scarcity of existing residential stock.
"One would think that, either residential demand must slow in order to alleviate the stock constraints, or building activity will have to be ratcheted up a notch or two," said Loos.
"We project a moderate positive growth rate in square metrage of residential building plans passed, to the tune of 1.6% for 2014 as a whole and 8.4% for 2015."
This higher level of forecast residential building activity is expected to contribute to further mild slowing in house price growth through 2014 and 2015.
Growth trends
The value of new mortgage loans granted for the construction of new buildings accelerated by 160% year-on-year for the first quarter of 2014, suggesting significant growth in building activity to come, said Loos.
While this includes commercial building mortgages as well as residential, he expects the residential component should contribute to some extent to this acceleration.
"Growth trends in residential building activity generally lag trend changes in demands for existing residential property by a considerable margin due to the lengthy planning and preparation period for new building," said Loos.
For the first quarter of 2014, the value of new residential mortgage loans granted had reached growth of 21.35% year-on-year.
The response of the residential building sector had been 8.2% year-on-year growth in square metres of plans completed for the first five months of 2014, up from 6.4% growth for 2013 as a whole.
The statistics indicate that in 2014 the residential development sector has planned to grow new residential building at a faster rate than its planned rate in 2013.
StatsSA's residential building statistics during the first half of 2014 showed year-on-year decline for the year-to-date after some moderate growth for the years 2012 and 2013 as a whole.
The FNB Estate Agent Survey has steadily pointed to increasing residential stock constraints in the existing home market.
"We do still foresee positive growth in residential building activity returning in the second half of 2014, and continuing into 2015," said Loos.
"The reasoning for this expectation is based, firstly, on the fact that data points to strengthening in growth in plans passed in the first stages of 2014, and with a lag we expect that this has to likely filter through into growth in building completions."
In addition, the level of residential building activity for 2013 as a whole remained at a level little more than half of what it was in 2007, which was the peak of the last building boom.
- Fin24
