Johannesburg - The development of flats and townhouses is the relative sweet spot in the residential building market at the moment.
Absa Home Loans property analyst Jacques du Toit believes the focus in the future, particularly in metropolitan areas, will shift to high-rise residential space because of issues such as service delivery and land availability.
“South Africa will move in the direction of the major cities of the world with high-rise residential property development. South Africans are not keen on it but they will have little choice.”
Du Toit conceded that high-rise living was already a feature in some city centres, with office blocks being converted into apartments for the lower end of the market.
However, he stressed there were only so many office blocks that could be converted before new developments needed to be built. “We’ve seen it in Sandton for the upper end market. But it will filter down.”
Absa’s latest quarterly housing review, released this week, revealed that the best-performing segment of residential building activity last year was new flats and townhouses. The number of plans approved grew 5.9 percent year on year and 9.1 percent more units were built.
This refers to houses financed by the private sector, excluding government-subsidised housing.
“This emphasises that there was a strong focus on higher-density housing, affected by a number of factors, such as urbanisation, affordability, land scarcity, building costs and lifestyles,” Du Toit said.
Absa’s review said overall residential building activity remained under pressure throughout last year, with the number of building plans for new housing, including houses, flats and townhouses, approved by local government institutions rising by only 1.3 percent to 50 484 units.
New housing under construction contracted by 3.7 percent to 41 398 units last year.
The review revealed that the average new house cost R565 000, or 31.9 percent, more than an existing house in the first quarter.
Du Toit said there was only likely to be a revival in the residential building market once the price gap between new and existing houses narrowed to at least the mid-20 percent level.
He said the gap had been above 30 percent since early 2011 and had see-sawed within a narrow band. It reached a peak of 36.9 percent in the first quarter of 2012 and was back at 36.7 percent in the third quarter of last year.
Despite the challenges in the market, Du Toit said, residential property had still experienced steady price growth at levels slightly above the inflation rate.
Absa said the average nominal price of a home in the middle market segment increased by 8.5 percent year on year to about R1 230 400 in the first quarter compared with 8.8 percent growth in the fourth quarter of last year.
“It’s not that bad, although it’s well off the levels from 2003 to 2006. I don’t expect the market to boom but we’re also not looking at a crash despite the increase in interest rates and expectation of further interest rate hikes.”