But don’t expect cheaper building rates just yet
RESIDENTIAL building contractors and developers face a bleak 2009 as plans for new housing projects slump to a seven-year low. Figures released by Statistics SA last week show the value of residential building plans approved between January and November last year fell 25,5% year-on-year.
Not only are fewer new homes, townhouses and flats being built but work on the renovations and extensions front is also drying up. First National Bank’s latest residential property barometer reports the percentage of homeowners spending money on value-adding fixed investments has dropped sharply from around 30% in fourth quarter 2006 to 13% in fourth quarter 2008.
Despite the slowdown in residential building activity it appears consumers aren’t yet able to negotiate discounted building rates with contractors. Industry Insight economist Annerine Lamprecht says in theory when demand wanes contractors should become more competitive about tender prices. But the ever-rising cost of building materials is leaving little room for the industry to cut margins.
However, Lamprecht notes contractors are no longer pushing through tender price increases of up to 30%, as seen over 2006/2007. Industry Insight figures show residential building cost inflation (cost to client) moderated to 10,1% in third quarter 2008 year-on-year. That brought SA’s average building rate to R5 822/sq m in the third quarter, based on residential contracts awarded.
John Chapman, a director of property developer Rabie Group, confirms the industry currently doesn’t have much leeway for price cuts on new residential properties. He says while the cost of some building materials, such as steel and bricks, has recently come down those savings have been negated by increases in other material costs, including concrete. Labour costs have also increased in line with inflation at around 10% to 11%.
However, Chapman says while prices of new homes may not be dropping like those of many secondhand ones developers may well avert price increases to remain competitive. “Consumers will probably be able to pick up a new house in 2009 at the same price they would have paid a year ago.” Chapman says the greatest challenge facing the new housing market is the lack of liquidity among SA’s banks, which are no longer able to finance new buyers based on the old leading criteria. “The banks are all requiring 20% to 30% deposits from new buyers. And while the reduced prime rate has been passed on to existing mortgage holders, new buyers are being charged prime plus, with the banks seeking to cover the higher cost of their money.”
Latest Absa figures show consumers are currently paying 20% more on average for a newly built home than for an existing one.