Average cost to build a house up 6.9% y/y

Cape Town - The average cost of new housing built increased by 6.9% year-on-year (y/y) to an average of R6 517 per square meter in the first nine months of the year compared with R6 094 per square meter in the corresponding period last year.

The average building cost and the y/y percentage change per square meter in the three categories of housing in January to September 2016 were up by up by 13.0% y/y to R4 343 for houses smaller than 80m²; up by 4.3% y/y to R6 581 for houses of 80m² or bigger; and up by 7.4% y/y at R7 574 for flats and townhouses.

"Against the background of trends in and the outlook for the economy, household finances and consumer and building confidence, residential building activity is set to remain largely subdued over the short to medium term," according to Jacques du Toit, property analyst at Absa Home Loans.

He said building activity in the South African market for new housing remained largely subdued in the first three quarters of 2016.

The planning phase of new housing, reflected by the volume of building plans approved, contracted on a year-on-year (y/y) basis up to September, whereas the number of new housing units completed showed very low single-digit growth over the 9-month period.

Du Toit based these trends on data published by Statistics SA in respect of building activity related to private sector financed housing.

Against the background of trends in and the outlook for the economy, household finances and consumer and building confidence, residential building activity is set to remain largely subdued over the short to medium term.

The volume of new housing units for which building plans were approved, contracted by 10.7% y/y to 41 139 units in the period January to September from a year ago.

According to Du Toit, this decline in building plans approved was largely the result of a sharp drop of 26.5% in the planning of new houses of less than 80m².

"The substantially smaller number of plans approved for housing at the lower end of the market in the nine months up to September is concerning in view of the housing need and consequent demand in this segment of the market," said Du Toit.

The number of plans approved in the segment for houses larger than 80m² contracted by just more than 6% y/y in January to September, with the flat and townhouse segment showing low growth of 3.7% y/y over the same period.

These trends in new-housing planning are indicative of prevailing economic conditions, the state household finances and levels of confidence, according to Du Toit.

Year-on-year growth in the number of new housing units built was relatively low at only 2.8% y/y in the 9-month period up September this year, with only the segment for flats and townhouses showing substantial growth of around 17% y/y over this period.

The relatively strong year-on-year growth in flat and townhouse construction is related to the levels of activity in the planning phase over the past 2½ years, with a normally long lag between the planning phase and the eventual completion date as a result of the extent of these housing projects.