Contraction in residential building activity at the start of 2017

17-03-2017
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SA Construction News
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The first month of 2017 saw building activity with regard to new private sector-financed housing in South Africa (see explanatory notes) contracting by a relatively large margin, based on data published by Statistics South Africa.

Contractions occurred across all segments of new housing in both the planning and construction phases in January, except in the category of flats and townhouses for which building plans were approved.
The number of building plans approved for new housing units was down by 12,5% yearon-year (y/y), or 456, to a total of 3 180 in January 2017 from a year ago.

This drop in building plans approved was mainly the result of a sharp decline of 34,9% y/y, or 858, to a combined total of 1 598 plans in the two segments of houses from 2 456 plans approved in January last year. However, the number of plans approved for new flats and townhouses saw a strong increase of 34,1% y/y, or 402, to a total of 1 582 in January. This rise in the volume of building plans approved for higher-density housing followed on an increase of 13,4% in 2016, whereas a contraction occurred in the planning phase of both the segments for houses last year compared with 2015.

The construction phase of new housing, measured by the number of units built, showed a significant drop of 27,1% y/y, or 732 units, to a total of 1 971 units in January this year. The contraction in the volume of new housing built in the first month of the year was evident across all three segments of the market.

The real value of plans approved for new residential buildings was down by R32,7 million, or 1,1% y/y, to R2,88 billion in January 2017, with the real value of new residential buildings reported as completed declining by R12,1 million, or 0,6% y/y, to R2,15 billion in January. These real values are calculated at constant 2015 prices.

The average building cost of new housing constructed in January 2017 increased by 11,6% y/y, which was well above the headline consumer price inflation rate of 6,6% y/y in January, to an average of R7 611 per square meter compared with R6 822 per square meter in January 2016.

The average building cost and the year-on-year percentage change in the rand value per square meter in the three categories of housing constructed were as follows in January this year:

• Houses of <80m²: R4 949, up by 29,4% y/y

• Houses of ≥80m²: R7 516, up by 13,7% y/y

• Flats and townhouses: R8 831, up by3,3% y/y

Against the background of relatively low levels of consumer and building confidence, as well as trends in and the outlook for the economy and household finances, residential building activity is expected to remain largely subdued in 2017.