Home building costs and land values

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06 Feb 2013

In the latest Housing Review Q1 2013, Absa has revealed that as of the fourth quarter of 2012, it was R553 800 or 34.8 percent cheaper to have bought an existing house than to have built a new house in 2012.

In the latest Housing Review Q1 2013, Absa has revealed that as of the fourth quarter of 2012, it was R553 800 or 34.8 percent cheaper to have bought an existing house than to have built a new house in 2012.

The bank says factors impacting building costs, and eventually the price of new housing include material costs, equipment costs, transport costs, labour costs, developer and contractor profit margins.

According to Absa, the cost of developing land for residential purposes is impacted by finance costs, land scarcity, the availability of services, the cost of rezoning and the demolition of old and unwanted structures and other infrastructure where applicable.

Jacques du Toit, Absa Home Loans property analyst, says the cost of having a new middle-segment house built was up by a nominal 4.8 percent in 2012 (4.9 percent in 2011).

The average nominal price of a new house was up by 5.1 percent to R1 591 600 in 2012 with real price deflation of 0.5 percent in 2011 after adjustment for inflation, explains Du Toit.  

He says the average nominal price of an existing house was about R1 037 800 in 2012 (up by a marginal 0.3 percent in nominal terms, but down by a real 5.1 percent from 2011).

In Q4 2012, the cost of building a new house was up by a nominal 2.2 percent year-on-year (y/y) (4.4 percent y/y in Q3), which was well below the average headline consumer price inflation rate in the quarter.

The average nominal price of a new house increased by 2.1 percent y/y to about R1 630 300 in Q4 2012 translating into a real price drop of 3.1 percent y/y.

The average price of an existing house was up by a nominal 5.5 percent y/y to R1 082 100 in Q4 2012 which came to no real y/y price change in the quarter, he says.  

Land values

According to the Absa report, 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 3.5 percent to R510 200 in 2012, after declining by 0.5 percent in 2011.

In real terms land values were down by 3.1 percent in 2012 after real price deflation of 4.2 percent in 2011.

Du Toit says in Q4, the average value of vacant land for new housing was up by a nominal 3 percent y/y to R508 700, while in real terms prices dropped by 2.3 percent y/y in the quarter.

He adds that land values for new housing will be reflective of location, the availability of services such as electricity and water and the availability and condition of road infrastructure.- Denise Mhlanga

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