select
|

Residential completions slowdown in 2015

(Article by John Loos, the household and property sector strategist at FNB Home Loans)

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 priosr 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-on-year 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 year-on-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 building completions growth dates back to late in 2014. 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 2015 recorded 1.324 million, still less than half of the late-2005 peak level.

Currently 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 currently 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-on-year for units completed, recorded in May 2014.

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 during 2015, 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 2015.

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 2016.

We would also expect to see the start of a move towards a smaller average size of home built in 2016, which would better reflect the financially constrained household sector.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK