Build­ing ac­tiv­ity un­likely to rally

Ris­ing costs ex­ceed in­fla­tion

The Star Early Edition - - BUSINESS REPORT - Roy Cokayne

RES­I­DEN­TIAL build­ing growth is ex­pected to re­main weak this year, ag­gra­vat­ing the plight of the build­ing sec­tor.

John Loos, a house­hold and prop­erty sec­tor strate­gist at FNB, at­trib­uted this to the per­cent­age price gap be­tween new and ex­ist­ing homes.

Loos said FNB es­ti­mated the per­cent­age by which av­er­age full ti­tle home re­place­ment costs ex­ceeded the av­er­age ex­ist­ing home value had ac­cel­er­ated to 30.4 per­cent last year af­ter be­ing nearer to 21 per­cent at stages in 2014/15.

“This makes it in­creas­ingly dif­fi­cult for the new de­vel­op­ment sec­tor to bring com­pet­i­tively priced new stock to the mar­ket,” he said.

“Weak house price growth in the ex­ist­ing home mar­ket of late has ex­ac­er­bated the sit­u­a­tion for the new de­vel­op­ment sec­tor, be­cause it has led to a widen­ing in the re­place­ment cost gap,” he said.

Jac­ques du Toit, a prop­erty an­a­lyst at Absa Home Loans, said yes­ter­day build­ing ac­tiv­ity since the 2008/09 re­ces­sion had re­mained sub­dued and was un­likely to im­prove this year.

Du Toit said one of the rea­sons for this was that build­ing costs each year kept in­creas­ing faster than the in­fla­tion rate.

He was at a loss to ex­plain the dif­fer­ent rates of in­crease in the build­ing costs of the var­i­ous hous­ing seg­ments.

Du Toit said the av­er­age build­ing cost of houses smaller than 80m² in­creased year on year per square me­tre by 13.6 per­cent be­tween Jan­uary and Novem­ber.

By con­trast, build­ing costs per square me­tre rose by 4.1 per­cent year on year for houses larger than 80m² and by 6.7 per­cent year-on-year for flats and town­houses in the same pe­riod.

Du Toit added that it ap­peared there had been a struc­tural change in the build­ing in­dus­try, be­cause the econ­omy had re­cov­ered af­ter the 2008/09 re­ces­sion and lower in­ter­est rates should have sup­ported the build­ing of res­i­den­tial prop­er­ties.

He said the house­hold sec­tor took a mas­sive knock dur­ing the 2008/09 re­ces­sion and he doubted it had re­cov­ered from this yet, while bank risk and credit cri­te­ria had changed a lot from 2007 with the Na­tional Credit Act’s in­tro­duc­tion.

Du Toit said af­ford­abil­ity was an is­sue, be­cause of high in­ter­est rates on debt many house­holds were stuck with fol­low­ing the strong growth in un­se­cured debt, which was credit card debt, per­sonal loans and hire pur­chase agree­ments.

He be­lieved these high debt lev­els had worked through to the prop­erty mar­ket, par­tic­u­larly as a home was the most ex­pen­sive item most peo­ple would buy in their life­time.

Du Toit said credit bu­reau TPN had re­ported that the av­er­age age of res­i­den­tial ten­ants had in­creased from about 27 years of age to above 30 years, de­spite the econ­omy grow­ing.

“That tells you peo­ple are rent­ing or stay­ing with fam­ily or friends for longer be­fore buy­ing a home. This has had an im­pact on the build­ing in­dus­try, which is much more fo­cused on flats and town­houses be­cause of af­ford­abil­ity, and is build­ing smaller units,” he said.

Du Toit said busi­ness and con­sumer con­fi­dence lev­els were also hav­ing an im­pact on the build­ing in­dus­try.

“I be­lieve many house­holds can take up debt and move to a new house, but their minds and pock­ets are not see­ing eye to eye. They have the fi­nan­cial means, but do not have the con­fi­dence to do so,” he said.

Fig­ures re­leased by Sta­tis­tics SA last week re­vealed that the vol­ume of new hous­ing units built grew by only 1.1 per­cent year on year in the 11-month pe­riod up to Novem­ber last year. Only the seg­ment for flats and town­houses reg­is­tered some no­tice­able growth at 9.5 per­cent year on year, or about 1 000 new units, over this pe­riod.

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