Property Talk

If you are in the business of building material supply then there is a good chance your business would have experienced a surge in demand with the peak in residential development completions that happened in South Africa over the past few quarters.

The FNB analysis of the StatsSA Building statistics makes for interesting insights into the residential property development market. The year-on-year growth in building completions in the 1st and 2nd quarters of 2019 were recorded as 48,3% and 47,9% respectively - the highest in almost a decade!

To help you understand the level of residential units completed, 12,661 were completed in the 2nd quarter of 2019. Although this was the highest number completed since the 14,618 completed in the final quarter of 2009, these figures are still well below the 20,284 completed in the 2nd quarter of 2007.

This "mini-surge" of building activity is at odds with the economic and property market cycles, which have been in a downward phase. As a retailer of building material, you should be watching the statistics for the number of building plans passed as a leading indicator of the direction of building completions to come in the future.

The number of building plans passed declined by -24,8% year-on-year after a 1st quarter decline of -13,7%, which represented the 3rd consecutive quarter of year-on-year decline. It is now only a matter of time for these declines in planning approvals to feed through into weaker completions growth.

For a high-growth region such as the Ballito area, this is important to keep front of mind to assess the impact it may have on local businesses. Although our local economy has enjoyed the demand created by semi-gration from Pretoria and Johannesburg as families have been flooding down to the coast in search of a higher quality of lifestyle, we will not remain untouched by the national statistics of the slow down in building activity and completions.

How does the price of the new builds compare with the existing stock of homes This is a good question and determines the future appetite that developers may have to take the risk of developing projects. FNB measure this price difference and show that for the past two quarters of 2019 the new build year-on-year inflation per square metre has been 6,16%.

This compares to the price inflation of the existing stock of homes as measured by the FNB House Price Index, currently measured at 3,5%. Older homes, therefore, trade at a significant discount to new stock.

Affordability pressures will, however, start to squeeze the margins on new builds and make it increasingly difficult for developers to deliver competitively priced residential units to the market. This will have a direct impact on the number of plans approved and eventually delivered.

The type of product that developers are bringing to the market has changed over the last decade. The "Flats and Townhouses" category has grown from 23,56% in 2011 to 60,6% in 2019. Interestingly the average size of a new residential unit in South Africa has increased from 107,4 sqm in 2013 to 159,1 sqm by the 2nd quarter of 2019.