Absa – Building costs rise by 14,3% in 2005
News > news - 13 Feb 2006
The average increase in the cost of building a new house in the middle segment of the housing market was 14,3% in 2005, according to Absa’s Residential Property Prospective First Quarter 2006 released in Johannesburg this week.

This, the bank says, was well above the average headline CPI inflation rate of 3,4% last year, reflecting an active building and construction sector over the past twelve months. Factors such as a strong demand for building materials and skilled labour in view of the demand for new housing during the course of last year have contributed to this development.

However, the nominal y/y growth in building costs continued its downward trend throughout 2005. This can be ascribed to the entrance of many new developers and building contractors into the property market during recent times, which led to greater competition.

The average price of a new house amounted to about R739 700 last year, which was a nominal 10,2% and a real 6,5% higher than in 2004. The average price of an existing house was about R692 400 in 2005 (a nominal 24,8% and a real 20,7% higher than in the previous year). This made it about R47 300, or 6,3%, cheaper to buy an existing house than to build a new one in 2005.

In the fourth quarter of last year, the cost of building a new house increased by a nominal 12,1% compared with the same quarter in 2004. The average price of a new house increased by a nominal 6,8% y/y to about R759 500 in the final quarter of 2005. The real increase was 3,0% y/y. In the fourth quarter of 2005, the average price of an existing house increased by a nominal 17,6% y/y to about R727 900, which brought the real price increase to 13,4% y/y.

The nominal price difference between new and existing houses declined to about R31 700, or 4,2%, in the fourth quarter of last year. This is the smallest difference since the 5,6% recorded in the second quarter of 1989. The year-on-year increase in the building cost of new houses in the various categories was as follows in 2005:

* Small houses (80m²-140m²): 13,4% nominal and 9,7% real
* Medium houses (141m²-220m²): 15,5% nominal and 11,7% real.
* Large houses (221m²-400m²): 12,2% nominal and 8,6% real.
* Affordable housing (40m²-79m²): 17,2% nominal and 13,4% real.
* Luxury housing (R2,2 million-R8,2 million): 9,1% nominal and 5,5% real.
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