Subdued residential building activity in the first quarter of 2015

The first quarter of 2015 saw continued subdued levels of building activity in the South African market for new housing, as reflected by the number of building plans approved and the number of buildings completed. Compared with a year ago, the volume of building activity contracted in both the planning and construction phases in the first three months of the year. These trends are based on data published by Statistics South Africa in respect of building activity related to private sector-financed housing (see explanatory notes).

The number of new housing units for which building plans were approved was down by 11% year-on-year (y/y), or 1 546 units, to 12 455 units in the period January to March 2015 from the corresponding period a year ago. This was mainly the result of a sharp contraction of 36,1% y/y in plans approved in respect of houses smaller than 80m², whereas the volume of plans approved in the segment of flats and townhouses increased by 15,5% y/y in the first quarter of the year.

The volume of new housing units reported as constructed declined by 10,1% y/y, or 930 units, to 8 260 units in the first three months of the year, driven by a contraction in the number of small housing units, i.e. houses of less than 80m², and higher-density flats and townhouses built. In these two categories of housing a total of 1 200 less units were built in the first quarter of the year compared with a year ago, with these segments being the major focus of housing demand in the main metropolitan areas of the country, impacted by factors such as housing affordability and changing lifestyles.

The real value of plans approved for new residential buildings was up by 9,9% y/y, or R797,1 million to a total of R8,86 billion in the first quarter of the year from R8,06 billion a year ago. The real value of residential buildings reported as completed was marginally lower by 0,2% y/y, or R12,4 million, to R5,04 billion in the first three months of the year from R5,54 billion in the corresponding period last year. These real values are calculated at constant 2010 prices.

The cost of new housing constructed came to about R5 900 per square metre in the first quarter of 2015, resulting in an increase of 5% on the building cost of R5 619 per square metre in the corresponding quarter last year. Building costs are impacting the prices of newly built housing as well as renovations and alterations to existing housing, which have also remained largely subdued up to the first quarter of the year compared with a year ago. Building costs are affected by building material costs, labour costs, transport costs, equipment costs, land prices, rezoning costs, and developer and contractor holding costs and profit margins.

In view of expected trends this year in major economic factors such as rising inflation, higher interest rates and low employment growth, as well as continued pressure on household finances and low consumer and building confidence, residential building activity is forecast to remain relatively subdued in the rest of the year.

Courtesy: ABSA Bank

Compiled by: Jacques du Toit - Property Analyst Absa Home Loans

45 Mooi Street, Johannesburg, 2001

PO Box 7735, Johannesburg, 2000, South Africa

Tel: +27 (0)11 350 7246

Email: [email protected]

www.absa.co.za

Explanatory notes:

The residential building statistics refer to private sector- financed housing, largely excluding government-subsidised low-cost housing, for which information was reported by local government institutions.

The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Absa Bank Limited and/or the authors of the material.