Home building costs in South Africa

02 Aug 2012

The cost of building a new house increased by 4.3 percent year-on-year (y/y) in Q2 2012, down from 4.8 percent in Q1 2012, according to a report.

According to the report, the average value of land for new housing in the middle and luxury segments of the market for which Absa received and approved applications for mortgage finance, increased by a nominal 6.3 percent y/y to about R532 500 in Q2 2012 (3.8 percent y/y in Q1 2012).

The Absa Home Loans Housing Review Q3 2012 report reveals that the average nominal price of a new house increased by 4.5 percent y/y to about R1 534 600 in Q2 2012.

Absa Home Loans property analyst Jacques du Toit explains that in real terms the price of a new house dropped by 1.1 percent y/y in the quarter.

He says the average nominal price of an existing house was down by 3.2 percent y/y to about R1 006 500 in Q2 2012 translating into a real decline of 8.5 percent y/y.

As a result, it was a nominal R528 100 or 34.4 percent cheaper to buy an existing house than to have a new one built in Q2 2012.

Du Toit points out that various factors affect residential building costs, which will eventually be reflected in the price of new housing.

These factors may include:

The cost of building a new house increased by 4.3 percent year-on-year (y/y) in Q2 2012, down from 4.8 percent in Q1 2012, according to a report.

1. The cost of serviced development land

2. Costs related to the planning and construction phases such as professional and consulting fees with regard to rezoning, the drafting and approval of building plans, structure design and site inspections

3. The cost of development finance

4. The cost of preparing land for construction

5. The cost of providing infrastructure such as roads, electricity, water and sewage installations

6. Building material costs

7. Equipment costs

8. Transport costs

9. Labour costs

10. Developer and contractor profit margins

Land values

According to the report, the average value of land for new housing in the middle and luxury segments of the market for which Absa received and approved applications for mortgage finance, increased by a nominal 6.3 percent y/y to about R532 500 in Q2 2012 (3.8 percent y/y in Q1 2012).

In real terms the average value of vacant land for new housing was marginally higher by 0.5 percent y/y in Q2 2012 after declining by 2.2 percent y/y in the preceding quarter, he adds. – Denise Mhlanga

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