Building costs continue to soar | Fin24
 
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Building costs continue to soar

Feb 20 2015 12:12

Johannesburg - Building costs have continued to increase by more than the average consumer price inflation rate over the past 15 years, according to Jacques du Toit, property analyst of Absa Home Loans.

The latest Absa residential building review compiled by Du Toit shows the average building cost of new housing constructed came to R5 828/m² in 2014, which was 12% higher than the cost of R5 205/m² in 2013.

The building costs are affected by a number of factors such as building material costs, labour costs, transport costs, equipment costs, land prices, rezoning costs, developer and contractor holding costs and profit margins.

Planning phase

"Growth in the planning phase of residential building activity in the South African market for new housing, as reflected by the number of building plans approved by local government authorities, was in 2014 at its highest level in more than 10 years," said Du Toit.

"However, the construction phase of new housing - that is the volume of housing units reported as completed - contracted for the second consecutive year."

These trends are based on data published by Statistics SA in respect of building activity related to private sector-financed housing.

New housing units

The number of new housing units for which building plans were approved increased by 12.6% to a total of 56 871 in 2014. This was the strongest growth since 2002, with the volume of plans approved at its highest level since 2008.

The segments of smaller-sized houses (less than 80m²) and flats and townhouses were the main contributors to the increased level of plans approved. These two segments of housing were also a strong focus of housing supply over the past two decades.

"Although not all housing planned will eventually be built, the expectation is that the marked improvement in the planning of new housing in 2014 will be reflected in the construction phase in due course," said Du Toit.

The number of new housing units reported as constructed dropped for a second year in succession, by 8.5% to 37 987 units, which was the smallest number of new housing units built in the space of a year since 1993.

All three segments of housing showed a contraction in construction activity in 2014 compared with the preceding year.

Plans approved

The real value of plans approved for new residential buildings increased by 13.7% year-on-year (y-o-y), or R4.42bn to R36.73bn in 2014 from R32.3bn in 2013. The real value of residential buildings reported as completed was only marginally higher by 0.7% y-o-y, or R153.5m, at R22.95bn in 2014 from R22.79bn in the previous last year. These real values are calculated at constant 2010 prices.

Building confidence

"Building confidence, based on the University of Stellenbosch's Bureau for Economic Research (BER) building confidence index, improved for the third consecutive year in 2014 to its highest level since 2008, driven by better conditions in residential building activity related to the planning phase," said Du Toit.

The building confidence index measures prevailing business conditions in the building industry sub-sectors of architects, quantity surveyors, main building contractors, sub-contractors, manufacturers of building materials and retailers of building materials and hardware.

The demand for and supply of new housing are driven by a growing number of households, economic factors, household finances and lifestyles, and consumer and building confidence.

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