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Friday Aug 15, 2014

Rising costs, less land results in smaller properties

New houses in South Africa have become smaller over the past 20 years.

More than 73 percent of the building activity financed by the private sector in the first five months of this year, in the planning and construction phase, was in the small house and high-density flat and townhouse segments, according to the latest Absa quarterly housing review, released yesterday.

Jacques du Toit, a property analyst at Absa Home Loans, said this had become a structural feature of the supply of new housing in the country since 1994.

He said it was driven by a number of factors, including urbanisation, land scarcity, building costs, housing affordability, property running costs, such as property rates and taxes, levies and electricity, and changing lifestyles.

Absa said residential building activity, as reflected by the number of building plans approved by local government institutions for new houses, flats and townhouses, grew by 16.6 percent year on year to 25 266 units in the first five months of this year from the 21 671 units in the corresponding period last year.

However, Absa said the construction phase of new housing, as reflected by the number of houses reported completed, contracted by 14.1 percent to a total of 15 329 units in this five-month period compared with the 17 854 new housing units built in the same period last year.

The gap between the price of a new and existing house has also shown little sign of narrowing, which would stimulate new home building activity.

It was on average 31.4 percent, or R561 100, cheaper to buy an existing house than to have a new one built in the second quarter.

Absa said the growth in the average price of a new house slowed down significantly to a nominal 1.2 percent year on year in the second quarter from 6.5 percent in the first quarter. This brought the average price to about R1 789 400.

Absa said in real terms, after adjusting the price increase for the impact of inflation, the average price of a new house declined 4.9 percent year on year in the second quarter.

But Absa said the average price of an existing house increased by a nominal 8.9 percent year on year to about R1 228 300 in the second quarter, resulting in real yearon-year price growth of 2 percent in the quarter.

Du Toit said residential building activity would continue to be driven by economic, consumer and housing demand and supply factors.

Demand for new houses, trends in the secondary market for homes, changing lifestyles, the availability of serviced development land and building costs would be important factors affecting residential building activity, he said.

'In view of these factors, the demand for and supply of new housing is expected to remain focused on the smallersized houses and higherdensity flats and townhouses segments.'

Du Toit added that the residential property market would continue to be driven by economic growth, employment and household income growth, property running costs and living costs in general, interest rates, consumers' credit-risk profiles, banks' risk appetite and lending criteria and consumer confidence.

These factors would affect the affordability of housing and mortgage finance, which would be evident in trends in property demand and supply, property prices, market activity, buying patterns, transaction volumes and the demand for mortgage finance, he said.

Nominal price growth was therefore set to remain in single digits during the remainder of this year and next year.

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