Building costs and land values

28 Aug 2013

In the second quarter of 2013, the cost of building a new house increased by a nominal 7 percent year-on-year (y/y) from 5.1 percent y/y in the first quarter.

According to Du Toit, the average value of land for new housing in the middle and luxury segments of the market for which Absa received applications and approved mortgage finance, increased by a nominal 9.4 percent y/y to R567 100 in Q2 2013 from 7.9 percent y/y in Q1 2013.

According to Jacques du Toit, Absa Home Loans property analyst, the rise in building costs was driven by inflationary pressures, with the headline consumer price inflation rate averaging just below 6 percent y/y in Q2 2013.

He explains that factors impacting building costs, and eventually the price of new housing, include building material costs, equipment costs, transport costs, labour costs, developer and contractor profit margins and the cost of developing land for residential purposes, which is impacted by aspects such as finance costs and land values.

These reflect the scarcity of serviced land, the cost of rezoning and the preparation of land for construction, which includes the demolition of old and unwanted structures and other infrastructure, and the installation of new infrastructure where applicable, he points out.

Land values

According to Du Toit, the average value of land for new housing in the middle and luxury segments of the market for which Absa received applications and approved mortgage finance, increased by a nominal 9.4 percent y/y to R567 100 in Q2 2013 from 7.9 percent y/y in Q1 2013.

He says in real terms residential land values were up by 3.5 percent y/y in Q2 2013 from 2.5 percent y/y in Q1 2013.

Land values for new housing will continue to reflect the all-important factor of location, as well as the availability of municipal services such as electricity, water, sewerage and refuse removal, as well as the availability and condition of transport infrastructure, he adds. – Denise Mhlanga

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