Residential Building Activity - Building Construction Contracted Despite More Plans Approved
Private sector-financed building activity in the South African market for new housing showed continued diverging trends on specifically a segment level in the first eight months of 2018, which caused the planning phase of new housing to have improved whereas the construction phase has contracted over this period.
The number of building plans approved for new housing increased by 11% year-on-year (y/y), or a total of 4 095 plans, to 41 480 plans in January to August this year. This growth in plans approved was the result of strong growth of 29,5% y/y, or 4 243 plans, in the segment of flats and townhouses, with a cumulative total of 18 649 plans approved in this category of the market in the 8-month period. Plans approved with regard to the two categories of new houses showed marginal declines. At a regional level the growth in the planning phase was largely driven by Gauteng and the Western Cape, with these two provinces having a cumulative share of 75,1% and showing combined growth of 25,3% y/y in plans approved up to August.
The number of new housing units reported as being completed was down by 8% y/y, or 2 063 units, to a total of 23 859 units in the first eight months of the year from 25 922 units built in the corresponding period last year. The segment of houses smaller than 80m² was the main driver of this decline, recording a drop of 31,2% y/y in the 8-month period. Although this trend in the construction of new houses at the lower end of the market is concerning based on the need for housing in this segment of the market, the contraction in the overall construction phase was to some extent countered by growth of 12% y/y in the segment of new flats and townhouses built. Regionally the contraction in the construction phase was largely driven by Gauteng (44,1% of the national total) with a drop of 13,7% y/y, together with declines in six other provinces.
The average building cost of new housing completed increased by 5,4% y/y to R7 435 per square meter in the first eight months of the year from R7 052 per square meter in the same period last year. In the period of January to August residential building costs increased by a real 0,8% y/y, based on an average headline consumer price inflation rate of 4,5% y/y over this period. The average building cost per square meter in the categories of new housing was as follows in January to August:
• Houses of <80m²: R5 791, up by 22,1% y/y.
• Houses of ≥80m²: R7 357, up by 3,2% y/y.
• Flats and townhouses: R7 921, down by 2,9% y/y.
Building activity with regard to alterations and additions to existing houses continued its downward trend in the first eight months of the year, with both the building area approved and the building area reported as completed showing a contraction on a year-on-year basis. The building cost of completed alterations and additions to existing houses increased by 12,7% y/y to R7 215 per square meter in the 8-month period from R6 404 per square meter a year ago. In real terms, the average building cost of completed alterations and additions to existing houses increased by 7,8% y/y over this period, with this type of building activity remaining relatively expensive and which most likely contributed to the year-on-year contraction up to August against the background of consumers under financial pressure.
Residential building activity is expected to remain relatively subdued in the rest of 2018 in view of a poorly performing economy, continued financial strain experienced by the household sector and a low level of building confidence in the first three quarters of the year.