New houses smaller and cheaper

SOUTH AFRICA'S five-year residential property boom is seeing the prices of existing homes playing catch-up with newly built ones. In fact, the price gap between new and existing houses shrank to a negligible 1,5% in first quarter 2006, the lowest price differential in 16 years.

Absa figures show that three years ago homebuyers still had to pay on average 31% more for the privilege of owning a new home. The sharp decline in the price difference between new and existing homes can be ascribed to house prices rising at a faster pace than that of residential building costs.

Absa senior economist Jacques du Toit says that the downward trend in building cost increases over the past three years is due to the large number of developers and building contractors now active in the property market, which leads to greater competition with regard to tender prices.

Absa places the average price of a new house in first quarter 2006 at R767 100, compared with a marginally lower R755 700 for the average existing house.

The narrowing price gap between new and existing houses can possibly also be attributed to the fact that houses are getting smaller. Du Toit says that changing lifestyle trends had undoubtedly shifted demand in favour of higher density security complexes and estate living. That has led to ever-declining stand sizes and building areas of new homes.

Johan Snyman, director of building economists Medium-Term Forecasting Associates, says building cost increases have slowed somewhat from 17% in 2005 to 13% this year, suggesting more moderate profit margins among building contractors.

Snyman says it currently costs between R3 000 and R4 500/sq m to build the average three-bedroom house, depending on finishes. - Joan Muller

Article courtesy of Finweek.