Price gap between new, existing property increases

The price gap between the cost of a new and existing property increased marginally in the first quarter of this year, but the narrowing trend still provides some hope for a revival in the home-building market despite increases in building costs.

Absa's latest quarterly housing review released yesterday revealed that it was about 22.1 percent, or R392 000, cheaper to have bought an existing house in the first quarter than to have had a new home built.

The price gap percentage was slightly higher than the 21.3 percent in the fourth quarter although the actual price gap was lower in the first quarter than the R411 700 price differential in the fourth quarter. It was at 21.8 percent in the third quarter of last year, 26.2 percent in the second quarter and 30.9 percent in the first quarter. It reached a 36 percent peak in mid-2013 and has narrowed almost every quarter since.

A narrowing in the price gap between new and existing homes is likely to stimulate residential building activity.

Absa said the average nominal price of a new house dropped in the first quarter of this year for the fourth consecutive quarter on an annual basis. It said the average nominal price of a new house dropped by 2.6 percent year on year to R1 776 900 in the first quarter after declining by 1.5 percent year on year in the fourth quarter of last year.

Jacques du Toit, a property analyst at Absa, said real price deflation measured a substantial 8.5 percent year on year in the first quarter compared with minus 6.1 percent year on year in the fourth quarter of last year. Absa said the average price of an existing house rose by a nominal 6.5 percent year on year to a level of about R1 384 900 in the first quarter of this year, with no real year-onyear price growth recorded.

Du Toit said current trends in the outlook for the economy, household finances and consumer confidence were set to impact the property market in various ways. These included diverging demand and supply conditions; changing buying patterns; pressure on market activity and transaction volumes; mortgage providers reconsidering and adjusting risk appetites; as well as lending criteria, accordingly.

Against the background of these trends and expectations, Du Toit said nominal house price growth was forecast to slow down from 6.2 percent last year to 4.7 percent this year and 4.3 percent next year, with "the risk for price growth to the downside".

(Article by Roy Cokayne)

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