Residential building costs slow
South African residential building costs inflation slowed further in the third quarter of the year, measuring 11.1% compared with 38.8% achieved in the same quarter last year, the FNB Commercial Property Finance Residential Building Cost Index showed.

The index reflects the average building cost per square metre, as charged by building contractors when winning tenders in the formal residential property sector. It excludes affordable and so-called "RDP" housing.

The average building cost per square metre was measured at 5,621 rand for the third quarter. This is mildly up from the previous quarter’s revised average of 5,548 rand/square metre.

"The slowdown is believed to be reflective of a residential market increasingly under pressure from the lengthy period of interest rate hiking along with a slowing economy.

"One would expect contractor pricing power to suffer as a result," said John Loos, FNB property strategist.

Furthermore the relative strength at the lower end of the market, the result of an affordability deterioration over the boom years, might be an increasing incentive for a portion of development activity to shift away from the more luxurious end of the market towards the lower, less frills, end.

Such a shift can also have an impact on the index’s price inflation rate, he said.

"It is also possible that the lower inflation rate is partly reflective of lower materials cost inflation, which has shown some decline over the past two quarters. This is indicated in the producer index for building materials," Loos said.

Looking ahead, Loos said that the downturn in building cost inflation could continue into 2008, but he expected that on average building cost inflation would be strong during the rest of the decade.

Article by: Tiisetso Motsoeneng - www.sundaytimes.co.za