Building activity in the South African housing market showed some improvement in the third quarter of the year compared to the same period in 2010.
The real value of new residential buildings reported as completed in the first nine months of the year was down by 4 percent y/y to R10 43 billion which was R430 million less than the total value of R10 86 billion in January to September 2010, according to Absa.
According to the Absa Residential Building Statistics report, the planning and construction phases of new housing in Q3 2011 compared to Q3 2010, showed improvement.
The report revealed that the real value of plans approved for new residential buildings was up by 2.2 percent year-on-year (y/y) to R14 338 billion from January to September 2011, an increase of R307 million from R14 031 billion in the same period last year.
The real value of new residential buildings reported as completed in the first nine months of the year was down by 4 percent y/y to R10 43 billion which was R430 million less than the total value of R10 86 billion in January to September 2010.
Absa Home Loans property analyst, Jacques du Toit says these real values are calculated at constant 2005 prices.
He explains that in the number of housing units for which plans were approved by local authorities, volumes were up by 8.3 percent y/y to 14 891 units in the third quarter this year (12 970 in the second quarter).
In the first nine months of 2011, the volume of plans approved for new housing was 9.2 percent y/y or 3 443 units higher than in January to September 2010.
“This improvement was driven by the segment for smaller houses and the category higher-density flats and townhouses,” says Du Toit.
The number of new housing units reported as completed was up by 6.9 percent y/y in Q3 2011 to a total of 10 952 units compared with 9 662 units constructed in Q2 2011.
In the first nine months of the year, the volume of new housing units built was 4.1 percent y/y or 1 186 units higher at a total of 30 145.
The uptick in new housing construction over this period was largely driven by the category for small housing, which showed growth of almost 14 percent y/y, he says.
He says the focus of the future demand for and supply of new housing is expected to be on the segments of smaller-sized houses and higher-density flats and townhouses.
The FNB Residential Building Activity Q3 2011 revealed that building completions have seen mild positive y/y growth.
The homes completed showed a y/y growth of +6.9 percent in Q3 2011 from 0.8 percent in Q2 2011.
FNB Home Loans property strategist John Loos says the level of building completions remains slow. At 1.263 million square metres completed for the 3rd quarter, the level of completion remains at 46.7 percent of the peak level reached in the final quarter of 2005.
Activity also remains well below the long term trend level since 1994, as the correction, in response to an oversupplied existing home market, continues, he says.
He explains that there is currently a strong demand for housing in the affordable segment and the building sector is responding to this demand trend.
In Q3 2011, completions in houses smaller than 80 square metres grew by 26 percent y/y and 32.7 percent in square metres.
A major constraint on building activity remains the significant replacement cost gap.
According to FNB’s valuers, the aggregate estimated residential replacement cost gap in the third quarter widened from the previous quarter’s 22.9 percent to 25.1 percent, the widest that this gap has been since the Q3 2003.
Loos says the third quarter proved to be a mild improvement in terms of the growth in building completions.
However, the volatile nature of building plans passed provides no clear indication on whether this improving trend will be sustained.
“We are of the opinion that this trend will probably not yet prove to be sustainable, with a wide replacement cost gap set to continue to make life tough for the building sector to bring competitively-priced homes to the market.”
He says the existing home market is well supplied and as a result its prices look set to remain under pressure in the near term with smaller homes being in more demand in the residential market.
Meanwhile, the commercial building sector experienced further weakening according to Statistics South Africa Q3 2011 Building Statistics.
FNB suggests that if commercial building activity is to see something of an overall pick-up in completions in the coming quarters, it would probably be driven by industrial property development and perhaps some retail building activity improvement on the back of recently strong retail sales.
All three major commercial building categories showed sharp declines in completions on a y/y basis.
In terms of square metres completed, industrial space completed declined by -42.5 percent y/y, retail space by -42.2 percent y/y and office space by -26.1 percent y/y.
Loos says this means that the cumulative decline in completions in commercial building activity has been nothing short of spectacular, good news for a market needing to return to balance but bad news for the property development sector.
From a mid-2007 peak level, industrial property building space completed was -181.7 percent lower for the 6 months to September 2011, retail space completed -152.9 percent down from its 2008 peak, and office space -181.7 percent down on its own 2008 peak.
Square metreage of retail space planned rose y/y +32.2 percent in Q3 2011, industrial and warehouse space by +22.3 percent and office space planned by +15.8 percent.
FNB suggests that if commercial building activity is to see something of an overall pick-up in completions in the coming quarters, it would probably be driven by industrial property development and perhaps some retail building activity improvement on the back of recently strong retail sales.
But office sector building activity is expected to remain the weak link on the back of high national vacancy rates. – Denise Mhlanga
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