Planning approvals on the increase - but not yet matched by building activity

Those looking for positive indicators in the South African residential property market may, says Tony Clarke, Managing Director of the Rawson Property Group, be encouraged by the significant rise in approved plans for new housing recorded in the first five months of 2014.  

This was reported on recently by Absa’s Home Loan Division, who then, however, ‘tempered’ the good news by commenting that as yet the construction phase (i.e. the number of completed buildings) still lags well behind the planning phase.

Absa’s figures, taken directly from Statistics SA, said Clarke, show that local authorities approved 6,763 units in May, 2,319 more than in April. The May figure was 42,8% higher than the same month in 2013 – a major improvement.  Nevertheless, in the five months up to May this year the number of completed units fell to 2,629, a 15,4% drop on the May 2013 figure.

The reduced building activity, said Clarke, has been accompanied by a steady rise in new building costs, the average per m2 price today being R5,638, 14,9% up year-on-year. This figure, Clarke reminded us, is not just building-related – it includes the cost of the land, which in some areas has risen very fast indeed.

Gauteng, the Western Cape and KZN continue to outpace all other provinces as regards building activity.

Clarke said that he agrees with Absa that building activity seems set to remain subdued for the foreseeable future, the most important reasons for this being the difficulties (for a large proportion of the population) in obtaining bonds and the really high levels of household debt in relation to income.

“The other side of the coin,” he said, “is that those who already own a home will benefit from the stock shortages caused by low levels of new building activity.  Depending on which authority one consults, it seems likely that residential prices in the next year will increase by at least 7%, thereby again running ahead of South Africa’s inflation rate.”

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