WIDENING GAP
It is almost 31 percent cheaper to buy an existing house than to build a new home
THE PRICE gap between the cost of new and existing houses is widening again.
With deteriorating household affordability, this will likely result in reduced demand for new houses and stifle building activity.
The average price of a new home increased by 3.9 percent year on year in the first quarter of this year to R1 869 400, while the existing house price increased by 7.2 percent year on year to R1 291 300, according to the latest Absa quarterly housing review released on Friday.
Jacques du Toit, a property analyst at Absa Home Loans, said this meant it was about 30.9 percent or R578 100 cheaper to have bought an existing house than to have had a new home built in the first quarter.
The price gap between new and existing houses widened in the first quarter from 28.6 percent or R516 100 in the fourth quarter of last year.
In 2007, the average price gap between new and existing homes was only 1 percent or R9 500. It has widened almost every year since then.
Du Toit attributed the latest widening in the price gap to rising building costs. He said building costs continued to rise at a faster rate than the average consumer price inflation.
“The cost of having a new house built increased by 9.7 percent year on year in the first quarter of 2015, up from an increase of 8 percent year on year in the fourth quarter of last year,” he said.
Du Toit added that the affordability of housing had also continued to gradually deteriorate up to the fourth quarter of last year, as reflected by the ratios of house prices and mortgage repayments to household disposable income.
He said a downward or upward trend in the housing affordability ratios of house prices and mortgage repayments to household disposable income implied that house prices and mortgage repayments were rising at a slower or faster pace than household disposable income.
“The result is that housing is in effect becoming more or less affordable,” he said.
Du Toit said house price growth was forecast to remain in single digits this year and next year, with price growth expected to be lower this year against the background of the outlook for the economy and household related factors. Resilient
Andrew Golding, the chief executive of the Pam Golding Property group, said on Friday that a steady increase in firsttime homeowners continued to provide a healthy and fundamental underpinning for the residential property market, which remained “steadfastly resilient”.
“Despite an unexpectedly weak start to 2015 for the South African economy, largely due to the impact of nationwide loadshedding, the performance of the local residential property market continues to compare favourably relative to other global markets,” he said.
National house price inflation, according to the Pam Golding residential house price index, peaked at 6.7 percent in the third quarter of last year and had since eased to an average of 6.3 percent in the first quarter of this year.