Rising building costs strengthen home prices

A quick look at the latest available building statistics shows how the pre-owned sector of the housing market is benefiting from rising building costs.

That’s the word from Berry Everitt, MD of the Chas Everitt International property group, who notes that according to the Absa Housing Review, the cost of having a new home built increased by 4,3% in the second quarter of this year, compared to the same period of 2011.

“This put the average nominal price of a new house at R1,535m, or some 34,4% ahead of the second quarter average of R1,007m for an existing house, and this differential in price is channelling much of the increased housing demand arising from historically low interest rates away from off-plan homes at the moment, and towards a reducing supply of pre-owned properties, thereby bolstering prices in this sector.”

In addition, he says, levels of residential building activity have continued to fall off this year, which means that even those who do want to buy a newly-built home are finding it more difficult to do so.

Writing in the Property Signposts newsletter, Everitt says figures from StatsSA show that in the first half of this year, the number of building plans passed for new housing units was down by some 11,6% compared with the same period of last year to 23 095 units – most of which will take approximately 18 months to two years to be built.

“Meanwhile, although the overall number of new homes actually completed in the first half of the year showed a year-on-year increase of 3,4% (645 units) there were significant declines in six of the nine provinces – and especially in the ‘less than 80sqm’ category that tends to be favoured by first-time buyers.

“The main reason for this decline is rising building costs, which at the moment are preventing developers from being able to deliver new homes at competitive prices, and in many cases causing them to abandon their plans altogether.”

Building input costs rose by 5,7% in the first quarter of 2012, but the building industry also has to contend with increases in the costs of labour, transportation and electricity, for example, and the Bureau for Economic Research estimates that overall building costs will show a 12,1% increase this year and a 16,3% increase next year.

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