Roy Cokayne
The prospects for a revival in the residential building industry appear to be a long way off.
This follows Absa’s latest quarterly housing review revealing that the price gap between new and existing houses widened to another new record of 37.2 percent in the first quarter of this year from 34.5 percent in the fourth quarter of last year.
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.
The price gap between new and existing houses hit a then record high of 33.8 percent in the fourth quarter of 2010, but subsequently declined to 32.5 percent in the first quarter of last year, 29.7 percent in the second quarter and 29.4 percent in the third quarter. The review said that the average nominal price of a new house rose by 7.2 percent year on year to about R1 587 900 in the first quarter.
The average price of an existing house fell by a nominal 2.3 percent year on year to about R996 600 in the first quarter, which amounted to a real fall of 7.9 percent year on year.
This meant it was 37.2 percent or R591 300 cheaper to buy an existing house than to build a new home.
Jacques du Toit, a senior property analyst at Absa, said that the price gap between the average price of a new house compared with that of an existing house had been on an upward trend for the past few quarters and it was difficult to see it coming down in the near future.
Du Toit said new house prices were being 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.
The ability of many households to take advantage of improved affordability has been affected by factors such as an average debt to disposable income ratio of well above 70 percent, a significant percentage of credit active consumers having impaired credit records, the introduction of the National Credit Act and its impact on banks’ lending criteria.
Du Toit stressed that these factors would result in more pressure on property and house size trends, with more affordable, smaller- and high-density properties most probably becoming more popular.
Erwin Rode, the chief executive of Rode & Associates, maintains that nominal prices for existing houses are still overvalued by 25 percent.