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Building a house now costs 7.5% more

Aug 19 2016 17:51
Carin Smith

Cape Town - The average cost of new housing build increased by 7.5% year-on-year (y/y) to an average of R6 417/m² in the first half of 2016 compared to R5 967/m² in the corresponding period last year, Jacques du Toit, property analyst at Absa Home Loans, said on Friday.  

Over the six-month period from January to June 2016 the average cost of houses smaller than 80m² increased by 8.5% y/y to R4 156/m² compared to the same period in 2015, while that of houses larger than 80m² rose by 4.2% to R6 494/m² and that of flats and townhouses went up by 8.5% y/y to R7 458/m².

Residential building activity is still relatively subdued compared to levels seen in the mid- to late 2000s - before the recession hit, Du Toit told Fin24.

He does not foresee the level of activity improving over the next few years against the background of current economic conditions and business levels, as well as consumer confidence.

"Various economic factors add up to the performance of the residential property sector in terms of building and planning activity. One must acknowledge that the trends remain very much subdued," said Du Toit.

"SA came out of the recession in 2009, so since then there have been seven years of building activity not really going back to prior levels. I believe broader economic factors are playing a part."

Du Toit said data from Statistics SA shows the first half of 2016 saw a contraction in the planning phase of new housing, with the construction phase showing single-digit growth. In the planning phase the volume of building plans approved contracted on a y/y basis up to June, with the number of new housing units completed recording some single-digit growth over the same period.

The volume of new housing units for which building plans were approved dropped by 730 units (2.5% y/y) to 28 466 units in the first half of the year. This decline was mainly driven by the two house segments, which showed a combined contraction of 7% y/y (1 290 units) to 17 125 units over the six-month period.

The segment of flats and townhouses, however, recorded growth of 5.2% y/y over the same period.

"Affordability has become a much more important factor in the residential market in terms of the growth in the number of flats and townhouses approved. To a large extent these are driven by developments in big metro areas," said Du Toit.

READ: Buyers 'deliberately' more conservative in property market

Housing build

The real value of plans approved for new residential buildings was R24.93bn in the first half of 2016, with the real value of new residential buildings reported as completed at R15.14bn in the period. Du Toit pointed out that these real values are calculated at constant 2015 prices.

Growth in the number of new housing units built came to 6.3% y/y in the period January to June 2016, with the segment for flats and townhouses showing sharp growth of 30.7% y/y over this period.

Du Toit cautioned, however, that one must see this growth in the higher density housing sector in perspective. A distorted view can be created by the percentage growth, which was largely driven by certain provinces like the Eastern Cape, Free State and Limpopo where the volume growth was off extremely low levels.

The strong year-on-year growth in flats and townhouses reported as constructed in the six months to June this year could also be due to the normally long lag between the planning and construction phases as a result of the extent of these housing projects, he explained.

"This relatively strong growth on the completion side of flats and townhouses could be based on a planning phase from, for instance, late 2014 or even 2015 and it has only now been completed and reported in the statistics," said Du Toit.

"Building activity on the residential side has not really been performing well for some time now. Even in the planning phase we see a small contraction, which is not a positive trend for the future. One would like to see plans approved and going into the construction phase. Imagine what can, therefore, happen to the construction phase further down the line."

Especially in the lower market segment - which has the big demand for housing - there has been a contraction in planning and construction and this sector has not seen a strong performance, he cautioned.

"South Africa is currently experiencing tough economic conditions, impacting the household, business and residential building sectors over a wide front," said Du Toit.

"Levels of confidence in these sectors of the economy have declined in the first six months of the year as a result. Residential building activity has not performed particularly well over this period and a significant improvement in building sector conditions is not expected over the short to medium term."

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