Residential building activity levels down in early 2015 from a year ago

Residential building activity levels down in early 2015 from a year ago.

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, started 2015 on a relatively low note, with both the planning and the construction phases recording a decline in volumes in January from a year ago. These trends are based on data published by Statistics South Africa in respect of building activity related to private sector-financed housing. 

The number of new housing units for which building plans were approved dropped by almost 12% year-on-year (y/y), or 562 units, to 4 145 units in January from a year ago. This was the net effect of a significant drop in plans approved in respect of houses less than 80m², whereas plans approved in the segment of flats and townhouses jumped by just more than 30% y/y in January. The category of houses larger than 80m² showed negligible growth of just 1% y/y in the first month of the year.  The number of new housing units reported as constructed declined marginally by 1,6% y/y on the back of a contraction in both the segments of houses, whereas the number of flats and townhouses posted growth of almost 30% y/y in January. 

The real value of plans approved for new residential buildings increased by 1,3% y/y, or R35,73 million to R2,69 billion in January from R2,65 billion a year ago. The real value of residential buildings reported as completed was down by 8,7% y/y, or R136,52 million, to R1,44 billion in January from R1,58 billion in the corresponding month last year. These real values are calculated at constant 2010 prices.

According to Jacques du Toit, Property Analyst at Absa Home Loans: "The average building cost of new housing constructed came to R6 025 per square metre in January 2015, which was 7,7% up on the building cost of R5 205 per square metre a year ago. Building costs continue to increase by a higher rate than the average consumer price inflation rate, impacting the prices of newly built housing as well as renovations and alterations to existing housing. The building area planned and completed with regard to alterations and additions to existing houses contracted further in the first month of the year."

Building costs are affected by a number of factors such as building material costs, labour costs, transport costs, equipment costs, land prices, rezoning costs, and developer and contractor holding costs and profit margins. Building confidence, based on the Bureau for Economic Research's building confidence index, was somewhat lower in the first quarter of 2015 from the fourth quarter of last year, but is still above the neutral level of 50 and remains in line with the rising trend in the confidence index since bottoming in 2011.

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

Residential building activity will continue to be driven by economic developments, the state of household finances, consumer and building confidence and consumer lifestyles, which will be reflected in the demand for and supply of new housing. Based on the outlook for the economy and the household sector, residential building activity is in 2015 set to continue around the levels of the past few years. However, a continuation of these trends will increase the pressure on available housing stock and eventually house prices, driven by a growing population and an increasing number of households.