Trend in res­i­den­tial com­ple­tions is one of slow­ing growth

Weekend Argus (Saturday Edition) - - PROPERTY - JOHN LOOS

FOR SEPTEM­BER, the num­ber of square me­tres of res­i­den­tial build­ing com­pleted grew by 14.8 per­cent year-on-year. This rep­re­sents an in­crease on the prior months’ 9.6 per­cent.

How­ever, as monthly data is tra­di­tion­ally volatile, we pre­fer to an­a­lyse trends through smooth­ing the data with a three-month mov­ing av­er­age. Here we see a con­tin­u­a­tion of the re­cent slow­ing growth trend in com­ple­tions. For the three months to Septem­ber, year-onyear growth of 7.4 per­cent rep­re­sents a slower rate than the 9.1 per­cent for the three months to Au­gust, and a more no­tice­able slow­ing from the high of 28.8 per­cent recorded for the three months to June.

The three-month mov­ing av­er­age for square me­tres of res­i­den­tial plans passed, too, has been record­ing slow­ing growth, from a 15.2 per­cent high for the three months to April, to 1.2 per­cent year-on-year for the three months to Septem­ber.

A sim­i­lar pic­ture is ev­i­dent when ex­am­in­ing the num­ber of res­i­den­tial units com­pleted. Here, too, we saw a rise in the year-on-year growth rate from 7.6 per­cent in Au­gust to 12.9 per­cent in Septem­ber. But smooth­ing us­ing the three month mov­ing av­er­age, we see a con­tin­u­a­tion of the growth slow­down to 2.55 per­cent yearon-year growth for the three months to Septem­ber, from a high of 31.5 per­cent for the three months to June. In short, the third quar­ter showed slower res­i­den­tial build­ing com­ple­tions than the sec­ond quar­ter, al­though both com­ple­tions and plans passed growth rates were still pos­i­tive.

The pe­riod of pos­i­tive build- ing com­ple­tions growth dates back to late last year. How­ever, even af­ter this pe­riod, the level of build­ing com­ple­tions re­mains mod­er­ate com­pared to the boom-time peak reached late in 2005. Whereas for the three months to De­cem­ber 2005 2.706 mil­lion square me­tres were recorded as com­pleted, the three months to Septem­ber this year recorded 1.324 mil­lion, still less than half of the late-2005 peak level.

Mod­er­ate lev­els of new res­i­den­tial stock be­ing sup­plied to the mar­ket are thus un­likely to cause any gross over­sup­ply of property. How­ever, we do be­lieve that slow­ing res­i­den­tial de­mand to come, as a re­sult of a weak­en­ing econ­omy, should ul­ti­mately lead to some al­le­vi­a­tion of res­i­den­tial sup­ply con­straints that are re­ported to be sig­nif­i­cant in some ar­eas.

Build­ing costs still ap­pear to limit the abil­ity of the de­vel­op­ment sec­tor to bring com­pet­i­tively priced new homes to the mar­ket. For the three months to Septem­ber, the year-on-year av­er­age value of units com­pleted rose by 8 per­cent, and of plans passed by 5.1 per­cent.

This in­fla­tion rate is, how­ever, no­tice­ably lower than the high of 20.8 per­cent year-onyear for units com­pleted, recorded in May last year.

Slower in­crease in av­er­age value ap­pears to have been helped by a slow­down in the in­fla­tion rate in build­ing ma­te­ri­als cost in­fla­tion, as per the PPI for build­ing ma­te­ri­als, to a low 1 per­cent year-on-year as at Septem­ber.

De­spite the chal­lenge of com­pet­ing price- wise with ex­ist­ing home val­ues, the re­cently pos­i­tive hous­ing mar­ket en­vi­ron­ment has not only led to some pos­i­tive growth this year, but has also seen an in­crease in the av­er­age size of homes com­pleted, from a low of 105m² for the three months to April 2013 to 135.5m² for the three months to Septem­ber.

This re­flects some­thing of a loss in mar­ket share of the cat­e­gory dwellings smaller than 80m², suggest­ing that build­ing in the higher-priced mar­kets has grown a lit­tle faster than that in the so-called af­ford­able hous­ing mar­kets since around 2013.

Given the broad multi-year slow­down in the coun­try’s eco­nomic growth, along with grad­u­ally ris­ing in­ter­est rates and very weak con­sumer con­fi­dence, we would ex­pect that the re­cent broad slow­ing in growth in res­i­den­tial com­ple­tions is likely to con­tinue into next year.

● John Loos is the house­hold and property sec­tor strate­gist at FNB Home Loans.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.