Residential sector hit by slack demand
Input costs offset by slack demand
BUILDING COST INFLATION – as measured by First National Bank’s commercial property finance building cost index – fell in the second quarter despite evidence of rising input costs, reflecting a very weak residential building market. The index reflects the average building cost per square metre as charged by building contractors when winning tenders in the formal residential property sector. It excludes affordable and so-called “RDP” housing.
FNB property strategist John Loos says building cost inflation measured 6,3% (year-onyear) in second quarter 2008, down from 8,2% in the first quarter. The inflation rate is a far cry from the 38,8% recorded at the previous peak in third quarter 2006 and is reflective of very weak residential demand and low contractor pricing power. “A mild up-tick in the inflation rate in the first quarter raised the suspicion that rising input cost inflation would start having an impact. However, the second quarter decline suggests that very weak residential demand may be offsetting this,” Loos says.
Countering steady increases in input costs is declining building activity in the residential market.