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Johannesburg - Despite successive mortgage rate cuts since 2008, cautious home buyers still prefer the cheaper option of buying existing homes to building new ones, an economist said.
FNB chief economist Cees Bruggemans said on Monday the drop in building confidence showed that meaningful recovery in the home building industry is still held back by high levels of consumer debt.
According to FNB, building confidence of residential contractors decreased from 26 index points in the first quarter to 21 in the second quarter.
"Based on building statistics published by Statistics SA (Stats SA) in respect of residential buildings plans passed in [the first quarter], the situation is unlikely to be reversed dramatically in the near term," said Bruggemans.
Stats SA on Tuesday reported that first-quarter building plans passed by municipalities decreased by 11.5% compared with last year. Residential building plans passed fell by 3.1% or R239.88m.
In real terms, residential building plans passed slipped by 6.6% or R369.9m.
According to FNB, lack of demand for builders' services is one of the main reasons for these results. "Business conditions are tough and new work remains scarce," said Bruggemans.
The decrease in the value of building plans passed was dominated by Gauteng (contributing -11.3%). Decreases were also reported by North West (1.8%) and Free State (1.1%).
Additions and alterations plans passed slid by 11.8%, Stats SA reported.
"Notwithstanding the sharp drop in the mortgage rate of 550 basis points, factors such as cautiousness on the side of consumers, buying existing homes cheaper than building new ones, as well as still-high debt levels are constraining a meaningful recovery in the home building industry," said Bruggemans.
According to FNB and the Bureau of Economic Research, consumer debt remains high. The consumer confidence index for the second quarter of the year showed it was virtually unchanged at 14 points, from 15 in the first.
- Fin24.com
FNB chief economist Cees Bruggemans said on Monday the drop in building confidence showed that meaningful recovery in the home building industry is still held back by high levels of consumer debt.
According to FNB, building confidence of residential contractors decreased from 26 index points in the first quarter to 21 in the second quarter.
"Based on building statistics published by Statistics SA (Stats SA) in respect of residential buildings plans passed in [the first quarter], the situation is unlikely to be reversed dramatically in the near term," said Bruggemans.
Stats SA on Tuesday reported that first-quarter building plans passed by municipalities decreased by 11.5% compared with last year. Residential building plans passed fell by 3.1% or R239.88m.
In real terms, residential building plans passed slipped by 6.6% or R369.9m.
According to FNB, lack of demand for builders' services is one of the main reasons for these results. "Business conditions are tough and new work remains scarce," said Bruggemans.
The decrease in the value of building plans passed was dominated by Gauteng (contributing -11.3%). Decreases were also reported by North West (1.8%) and Free State (1.1%).
Additions and alterations plans passed slid by 11.8%, Stats SA reported.
"Notwithstanding the sharp drop in the mortgage rate of 550 basis points, factors such as cautiousness on the side of consumers, buying existing homes cheaper than building new ones, as well as still-high debt levels are constraining a meaningful recovery in the home building industry," said Bruggemans.
According to FNB and the Bureau of Economic Research, consumer debt remains high. The consumer confidence index for the second quarter of the year showed it was virtually unchanged at 14 points, from 15 in the first.
- Fin24.com
