Property Talk

Date: 2014-09-05

Activity in the residential property building market has attracted interest of late and given the lengthy time period involved in the preparation and planning of new projects there is often a significant difference between the number of building plans passed and the actual buildings completed. For the fist 5 months of 2014 the year-on-year growth in the square metres of plans passed grew by 8,2 %, up from 6,4% growth for 2013 as a whole. However, when we consider the figures for the actual square metres of residential space completed for the first 5 months of 2014 we note that the year-on-year figures show a decline by -8,8%.

If we look back over the past 15 years and consider the level of residential plans completed we are at the levels recorded in 2000/2001. The total square metres completed for the year 2013 was 4,9 million, which has reflected the level for the past four years. The peak was reached in 2007 when 9,3 million square metres of residential property space was completed. When you consider that the market is approximately half of what it was between 2005 to 2008 you begin to appreciate the impact this would have had on building supply companies and contractors who service the market.

Interior decorators and furniture suppliers would also have experienced this tremendous decline in activity on their businesses over the period. So what can we expect for the next six to twelve months? According to FNB's recently published property barometer on the residential building outlook a return to positive growth can be expected over the remainder of 2014 and into 2015. With a healthy pipeline of new residential plans passed we can expect a portion of these to translate into new building activity. From FNB's estate agent survey report we are able to note that a growing number of agents around the country are reporting stock constraints as the main factor driving expectations of activity over the near term. Limitations on existing stock levels will drive pricing upwards and will encourage developers to deliver new projects across price brackets that appear to be most in demand.

One of my favourite stats is the FNB Replacement Cost Gap, or the difference between the cost of new builds versus existing homes. This difference between new and old reached zero in 2007 as home pricing surged in the face of easy credit fueled demand. As the recession hit and home prices fell sharply this gap quickly opened up to 25,7% at its recent peak in 2012 and is currently around 22,9%. Another very interesting stat to consider is the South African Reserve Bank's breakdown of mortgage loans granted by purpose. The value of new mortgage loans granted for new buildings accelerated by 160% year-on-year for the 1st quarter of 2014, suggesting a significant increase in building activity in the pipeline.

The other categories of mortgage loan "purpose" included those granted on exiting buildings (grew by 61,51%) and mortgage loans granted on vacant land (grew by 40,93%). Vacant land purchases will also in turn feed through into building activity. All in all the future looks good for those contractors and suppliers equipped to service the residential building market.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Seeff KZN Chairman

Principal - Seeff Dolphin Coast

andreasw@seeff.com

Springclean

Enlarge View Link

Nissan T5ekton

Enlarge View Link