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Thursday Jan 31, 2013

No relief in sight for home builders

The prospects for a revival in the residential building industry appear to be a long way off, with the price gap between new and existing houses still extremely wide.

A recovery in the residential building market is unlikely until the price gap between new and existing houses narrows, because existing homes provide better value for money than new houses.

Absa's housing review for the fourth quarter reveals that, on average, it was 34.8 percent, or R553 800, cheaper in 2012 to have bought an existing house than to have built a new home.

The average price of an existing house last year was about R1 037 800, which was 0.3 percent higher in nominal terms than in 2011 but 5.1 percent lower in real terms (after taking into account the effects of inflation).

In the fourth quarter, it was 33.6 percent, or R548 200, cheaper to have bought an existing house than to have built a new home.

The record 37.2 percent price gap between new and existing houses was achieved in the first quarter of last year.

The gap between the average price of a new house and that of an existing house is driven by a number of factors, including the cost of serviced developed land; the cost of development finance; the cost of providing road, electricity, water and sewage infrastructure; the cost of materials and other building inputs; and developer and contractor profit margins.

Absa's quarterly housing review also revealed that Greater Johannesburg was the only major metropolitan area to register a decline in nominal house prices last year.

Jacques du Toit, a property analyst at Absa Home Loans, said real house price deflation was recorded in most regions last year compared with 2011.

Greater Johannesburg house prices declined by 2.5 percent in nominal terms and by 7.7 percent in real (after-inflation) terms. It was the worst-performing major metropolitan area.

East London was the best-performing major metropolitan area. Nominal house prices rose by 8.5 percent last year and by 2.7 percent in real terms.

Gauteng house prices dropped by 0.6 percent and by 5.9 percent when adjusted to take account of inflation.

From a provincial point of view, both KwaZulu-Natal and Free State performed worse than Gauteng.

House prices in KwaZulu-Natal declined by 2.1 percent in nominal terms and by 7.3 percent in real terms and in the Free State by 1.7 percent in nominal terms and 6.9 percent in real terms.

The Northern Cape was the best-performing province last year, with house prices increasing by 10.7 percent and by 4.8 percent in real terms.

The ability of many households to take advantage of improved affordability has been affected by factors such as household debt levels; the fact that 47 percent of the total 19.69 million credit active consumers have impaired credit records; and the National Credit Act, which has affected banks' lending criteria.

Business Report

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