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Bugle Sales Talk Editorial

Bugle Sales Talk Editorial

Author: Andreas Wassenaar
Date: 2016-02-26
The latest residential building statistics for South Africa were released last week by StatsSA, which provide insight into the overall national and the respective provincial building activities. It is of particular interest for property professionals to be aware of building completions as well as building plans passed as the latter is a very good proxy as a leading economic indicator to assist us in predicting the trend of future economic activity in general.

If we consider the rate of growth of building square metres completed, we note that 1.383 million square metres were completed in the 4th quarter of 2015. This is 5,6% up on the 1,310 million square metres completed in the fourth quarter of 2010. However over the past 10 year period we are well below the 2.706 million square metres completed in the 4th quarter of 2005. The latest quarterly figures do however indicate a year-on-year decline of -3,7%, which is a big slow down from the previous two quarters that saw growth of 2,3% and 31,5% respectively. If we look at building plans passed in the 4th quarter of 2015 these also slowed by -4%, down from 1,2% in the prior quarter.

The cost of construction and building a new home relative to the cost of buying an existing home is one reason provided that can explain the slowdown in building completions and plans passed. FNB publish a statistic called the Full Title Property Replacement Cost Gap, which is a neat way of showing what the difference is in relative cost between a new build and buying existing stock. Currently this figure is at 21,9%, which means a new build of a similar home will cost 21,9% more than buying existing stock. Although this cost gap is down from the 26% peak measured in in early 2012 it still represents a large differential and makes it much harder for new developments to compete with existing stock.

The two measures of affordability of newly built homes are showing the same picture. The first measure is the installment repayment on a 100% bond on an average priced new home relative to the average employee remuneration and the second is the average value of the completed units relative to the average employee remuneration. These measures are reduced to indices, which currently show that affordability has in general been tracking sideways over the past five years, although the recent interest rate hikes have meant that the installment repayment measure has edged upwards as interest rates have moved upwards. Affordability pressure has therefore started to emerge and will be most evident in the first time buyer market, which is most sensitive to changes in interest rates. It is interesting to note that the composition of buildings completed has moved in favour of flats and townhouses and homes larger than 80 sqm over the past 5 years. The market share of homes below 80 sqm has fallen from 48% to 40% over this period. This is normal as the affordable housing construction market is less cyclical than the higher priced markets. As the cycle changes we can expect developers to start to focus more on the affordable market. The first signs of this has become evident with the relative measure of building plans passed for homes below 80 sqm growing to 38% for 2015, up from 35% and 36% for 2013 and 2014 respectively.

On a provincial level it is interesting to note that for 2015 the Western Cape had 29.4% share of the national market for buildings completed. Gauteng had 41.4%. That is a very significant 70.8% of the total market between these two provinces. KZN had 5.2% of the 2015 market share of buildings completed.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com