Building activity in the South African property market wasdepressed as the value of buildings completed dropped by 6.5 percent between January and June.

Building activity in the residential market remained unimpressively low for the first six months of this year with the real value of buildings completed down by 6.5 percent year-on-year (y/y) to R6.73 billion from R7.2 billion last year according to figures released by Absa.

However, Absa’s senior property analyst, Jacques du Toit says that the real value of plans approved for new residential developments had increased by 4.2 percent y/y to R9.15 billion between January and June, up from R8.7 billion for the same period last year.

Du Toit says that while the value of plans passed for residential buildings has risen over the full six month period, the actual second quarter figures showed that there were lower volumes in the small-house segment while those for medium- and large-sized homes continue to grow.

“The total number of housing units approved for construction amounted to 12 970 units in the second quarter of this year, down by 9.6 percent y/y from a total of 14 346 units a year ago,” says Du Toit.

He says the volume of new housing units completed was up by 2.5 percent y/y in the first half of 2011 after growing by a marginal 0.8 percent in the second quarter.

“The low growth recorded in the second quarter was largely due to the poor performance in completing new flats and townhouses. This mean the number of units completed fell by 17.2 percent year-on-year for the period,” he says.

A total of 9 662 new housing units were built in the second quarter of the year compared with 9 590 units completed in the same period last year.

Referring to the outlook for the building industry for the rest of this year, Du Toit says it will largely be driven by the state of household finances and economic developments in South Africa.

“Housing affordability remains an important factor that is expected to benefit the small-housing segment of the market such as flats and townhouses,” he says.

The market for alterations and additions to existing home also showed little excitement for the building sector with the total number of completed alterations or additions reaching 921 091 during the period from January to June, up by 1.5 percent for the country as a whole.

Du Toit says that in this sector of the market there was a marked upswing in Mpumalanga where the alterations and additions completed in the first six months of the year increased by 56.6 percent. However, in Limpopo the figures reflected a sharp decline, falling by 27.1 percent.

The FNB Property Barometer Q2 Building Statistics report indicates that residential building activity is approaching stabilisation after a major decline in recent years.

The number of residential units completed grew to 0.8 percent in Q2 2011, the second consecutive quarter of mildly positive year-on-year growth.

FNB Home Loans property strategist, John Loos says the positive growth in number of units versus negative growth in square metreage completed implies a relative shift to smaller size units.

“We see the fastest growth in completion of +9.9 percent year-on-year in houses smaller than 80 square metres, +5.1 percent in larger houses (more than 80 square metres) and -17.2 percent in flats and townhouses,” says Loos.

Loos says the weakness of the flats and townhouses category comes as no surprise especially the sectional title component of the suburban markets. This market was the most oversupplied after the residential and building boom resulting in the slowest building growth in the flats and townhouse category through 2010 and 2011.

“We believe that it is the lower income affordable housing segment which should see superior growth to others. “This will drive building activity growth in the two dwelling houses category especially the smaller than 80 square metre category,” says Loos.

He expects the overall square metreage of residential building completed to return to positive low single-digit growth in the coming quarters, in lagged response to a very mild uptick in residential demand and in existing property prices after the 2008 recession.

Loos says growth will be constrained to very mild levels by the strong supply of existing properties in the market, new homes’ building costs still outstripping existing home values by a significant margin, and widespread financial pressure on the household sector.

“The limited expected growth is expected to be driven largely by the affordable segment of the market.”

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