Building costs rise 30%, says FNB

IT NOW costs at least 30% – or R629 500 on average – more to build a new house from scratch than buying an existing one.

Rapidly rising building and land costs amid stagnating house price growth in the existing home market are largely to blame.

FNB property strategist, John Loos, said the average price differential between building a new house and buying a secondhand one of the same size has accelerated to 30.4% in the fourth quarter of 2016.

That is up from an average 21% during the preceding two years and the highest level since early 2003.

The only time in the past 20 years that it cost roughly the same to build or buy was in 2007-08, when house price growth was still outpacing building cost inflation.

Loos said the widening replacement cost gap is making it increasingly difficult for residential developers to bring competitively priced stock to the market.

Growth in residential building plans completed had already slowed to a measly 0.6% in the three months ending November, down from 8.15% for the three months to October (year-on-year).

Loos noted that the amount of new residential space completed in the third quarter was only about half of what it was back at the height of the building boom in 2005-07.

Absa figures reflect a similar trend, with the bank’s house price index showing a hefty 16.1% increase in the price of new houses in the third quarter compared with an average increase of only 3.5% for existing houses.

That brought the average price of a new house to about R2.02-million versus R1.39-million for a second-hand one. — TMG