Long, slow haul ahead for home-building industry

Construction, and especially residential construction, is a major creator of employment and ultimately also of housing demand, so it is always worrying when the home-building sector goes into decline, says Bill Rawson, Chairman of the Rawson Property Group.

“And the latest available figures from StatsSA show that although there are pockets of strong activity, the overall picture is deteriorating at the moment, with levels of activity in both the planning and construction phases of private-sector housing having shrunk considerably in the first seven months of the year.”

According to the report, he says, the number of plans passed for new homes showed an overall year-on-year decline of 8,4% during this period to just over 32 000, while the total real value of those plans showed a 1,9% year-on-year decline to R28,4 billion. Three regions, KZN, the Northern Cape and the Western Cape, actually recorded increases in the number of plans passed, but these were eclipsed by huge declines in Limpopo, North West and the Free State and falling numbers in the other regions too.  

In addition, while the number of new homes completed showed a 2,6% year-on-year increase at end-July, the total real value of those buildings fell by 1,3% to some R17,3 billion. Once again, however, the picture was not homogenous, with certain regions actually recording increases in completions while others recorded substantial declines.

“It is also important to note,” Rawson says, “that the only reason there was an overall increase in the number of buildings completed was the 24% increase in the ‘flats and townhouses’ sector, where developers were most likely finishing off projects that they had planned up to two years ago – which is how long it takes to get most multiple-unit developments from the drawing board to the building stage.

“The scale of these projects means that once building has started, it is much more difficult - and costly - to halt them than it is to decide not to build a single dwelling, which is why one will often see construction work continuing on flat and townhouse developments even after an economic downturn.

“In other words, there is a lag in this segment, which is only corrected when the number of plans being passed declines, as it has this year, and signals that we can expect much fewer housing starts of any kind for at least the next 18 to 24 months.”

The silver lining in this scenario, he says, is that it will tend to bolster prices in the pre-owned sector of the residential market. “With affordability being a major issue in the property market at the moment, many prospective buyers are in any case concentrating on pre-owned homes, which are considerably less expensive than newly-built units.

“According to Absa, the cost of stands in the middle and luxury segments of the housing market showed a year-on-year increase of 21% in the second quarter of this year, while the cost of having a new house built increased by 8,5%, and as a result of these and other factors, it is currently 28,6% more expensive, on average, to buy a newly-built home than to buy a similar pre-owned property.”

Then on top of this, says Rawson, the fact that there will be a limited amount of new stock coming on to the market means that the overall supply will start to diminish relative to ongoing demand. “This will see buyers starting to “compete” once more for the available homes, and driving prices up again in the process.

“And eventually, that will restore developers’ confidence and encourage them to start planning new projects once again, but with the economy in its current slow mode, I expect the construction recovery process to be a lengthy one.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 24 Nov 2017
      Tshwane’s four-bedroom Mayoral mansion, nestled among ambassadorial residences in the upmarket suburb of Muckleneuk, fetched R5.1 million after spirited bidding at High Street Auctions’ final sale of the year.
    • 23 Nov 2017
      Reserve Bank Governor, Lesetja Kganyago, said that the Monetary Policy Committee had once again decided to let the interest rates remain unchanged with the repo rate at 6.75%, and the prime lending rate at 10.25%.
    • 23 Nov 2017
      As the holiday season approaches, most of us are counting the days until that year-end bonus hits our account. There’s nothing quite like a little bank balance booster to get us in the holiday spirit.
    • 23 Nov 2017
      The Adelphi Centre (now entitled “ARTEM") in Sea Point, Cape Town, is being extensively renovated, and once complete will offer an ultra-luxurious galleria style shopping centre unlike any other seen on the Atlantic Seaboard or in Cape Town.
    • 23 Nov 2017
      If you are looking to sell your home in today’s real estate market, there are certain things that you need to include both inside and outside your house. Today’s generation of home buyers is looking toward a more eco-friendly, energy and water conscious home, and if your house stands out then you are more likely to be able to sell it.
    • 22 Nov 2017
      Most people know of the Community Schemes Ombud Service (CSOS) and that levies must to paid to fund its operations. In this article the experts at Paddocks will address some of the issues that are causing confusion.
    • 22 Nov 2017
      While sales have noticeably slowed in most sectors in most Cape town suburbs, the security estate sector in Constantiaberg has bucked the trend by remaining buoyant, with sales by August this year already surpassing total sales in 2016.
    • 22 Nov 2017
      The end of the year is fast approaching, and so are all the travellers, tourists and holidaymakers. For those who live near or own a property in a holiday-hotspot, the festive season also brings with it an abundance of short-term rental opportunities. Its a great way for property owners to make a few extra rand for their own holidays or to put towards their savings.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us