New construction 'poses threat to property prices'

The number of flats and townhouses completed last year ballooned by 51.4 percent year on year. This posed a potential threat to house price growth, Standard Bank warned yesterday.

It attributed the strong growth partly to base effects following four years of declining growth.

But Sibusiso Gumbi, a research strategist at Standard Bank, said yesterday that strong building activity might emerge as an additional source of downside pressure on house prices in the future if these building trends were not met by adequate demand.

Gumbi said the real value of completed residential buildings increased by 6.6 percent year on year in the first quarter of this year from minus 0.8 percent in the fourth quarter.

In addition, 825 houses of 80m² or less were completed in the first quarter, a 20.8 percent improvement on the corresponding quarter last year.

Gumbi said construction of flats and townhouses was also robust, with a 12 percent yearon-year improvement in the first quarter.

In the first quarter, 162 fewer dwellings larger than 80m² were completed, which represented a 5.8 percent year-onyear contraction, he said.

However, Jacques du Toit, a property analyst at Absa, was not concerned about the level of activity in the flat and townhouse segment and warned that percentage changes could give a false impression, particularly if off an extremely low base.

Du Toit said the number of flat and townhouse plans that had been approved dropped year on year by 10.6 percent in 2008, by 44.2 percent in 2009 and by 25.7 percent in 2010.

The number of building plans approved for flats and townhouses was 12 275 in 2010 - more than 50 percent lower than the 33 113 approved in 2007, he said.

The number of building plans approved for flats and townhouses improved by 20 percent in 2011 and by a further 4.8 percent last year.

But Du Toit said the level of approvals last year - at 15 432 - was still more than 50 percent lower than the number of approvals in 2007.

Du Toit said the segments of the market that were growing the most were houses smaller than 80m², and flats and townhouses. There was a move away from houses larger than 80m².

He attributed this to affordability and lifestyle changes.

The flat and townhouse market was improving, particularly in metropolitan areas, because there was insufficient land for development and because of the increasing cost of land, services and transport.

The move away from houses larger than 80m² was caused not only by the cost of buying these houses and paying off the home loans but by the associated running costs, including rising electricity prices and rates and taxes.

Du Toit said Statistics SA data showed that 73 percent of all new residential property that had been built since 1994 was houses smaller than 80m² and flats and townhouses.

This trend has resulted in independent mortgage provider SA Home Loans yesterday announcing its entry into the affordable housing market.

It is offering 100 percent loans over 20 years to qualifying customers. The loans will have variable interest rates.

It said it had reduced its minimum property size to take into account the trend to smaller properties.

SA Home Loans chief executive Kevin Penwarden said affordable housing was an important segment of the market, with properties valued between R250 000 and R500 000 making up more than a quarter of all registered residential properties.

(Business Report)

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