Lifestyle

Properties Get Smaller As Costs Go Through The Roof

Despite building costs continuing to increase at above the inflation rate, the average price of a new home increased only marginally by 0.4 percent year-on-year in the second quarter of this year and declined by 4 percent in real terms.

Jacques du Toit, a property analyst at ABSA Home Loans, said yesterday that rising building costs were affecting the prices of newly built homes and the cost of renovations and alterations to existing homes.

The latest quarterly housing review released by ABSA revealed that the cost of having a new house built increased by 6.2 percent year on year in the second quarter of this year, which was lower than the 9.6 percent year-on-year increase in the first quarter.

Du Toit stressed the cost of a new house could not be directly compared with building costs. He said the cost of a new home did not comprise only the building but also the land, and land prices had not performed that well over the past two quarters.

ABSA’s review reported that the growth in the nominal value of vacant residential stands in the middle and luxury segments of the housing market, for which ABSA received applications and approved mortgage finance, had slowed to 1.1 percent to an average of about R592,000 in the second quarter from 9.4 percent year on year in the first quarter.

In real terms after excluding the impact of inflation, residential land values declined by 3.3 percent year-on-year in the second quarter after rising by 5.1 percent year on year in the first quarter, ABSA said.

Du Toit agreed that smaller sized new houses and cheaper finishes could also influence the price of new houses.

He added that if more residential properties of a smaller size were sold this year than last year, the average of houses would most probably be lower.

Du Toit said very few people would be able to afford a house if the size of homes remained the same when “building costs are going through the roof“, and developers and builders had to keep homes smaller to ensure they remained affordable.

ABSA said the average price of an existing house increased by a nominal 7.1 percent year on year to R1.3 million in the second quarter compared with R1.79m for a new home.

The bank said this meant it was about 26.2 percent, or R470,600, cheaper to have bought an existing house than to have a new home built in the second quarter.

Du Toit said there was a 36 percent price difference between new and existing houses in mid-2013 but this gap had narrowed now to 26.2 percent.

ABSA said house price growth had softened since late last year and was forecast to remain in single digits this year and next year.

Price growth is set to be lower this year compared with the past two years against the background of trends in and the outlook for key macroeconomic and household sector related factors.”

Based on the current forecasts for nominal house price growth and consumer price inflation, marginal real house price inflation is projected for this year and next,” it said.

[clickToTweet tweet=”The 36% price difference between new and existing houses in mid-2013 but this gap had narrowed now to 26.2%.” quote=”The 36% price difference between new and existing houses in mid-2013 but this gap had narrowed now to 26.2%.”]

ABSA said the trends and prospects for the economy, the housing sector and the property market meant the subdued level of residential building activity of the past five to six years would probably continue over the next 12 to 18 months, with some activity levels contracting and building confidence declining in the first half.

This article was “Properties Get Smaller As Costs Go Through The Roof” issued by ABSA Home Loans.

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