New residential property: more pain looms

Builders, interior decorators and other suppliers of goods and services in the new residential property arena can expect the tough times to continue. The number of building plans passed by local government officials is down dramatically on recent years, latest statistics show.

In a note released by Absa Home Loans, senior property analyst Jacques du Toit said residential building activity is expected to remain depressed for the rest of the year.

This was in response to the release of data on residential building activity by Statistics South Africa up to April 2009, which "indicate that the planning and construction phases of the housing sector remain depressed against the background of tough economic conditions".

Du Toit said that in the four months up to April this year, residential building plans with a total real value of R5,44bn were approved by local government institutions, which was about 52% lower compared with R11,31bn in the period January-April 2008.

"The real value of residential buildings reported as completed in the first four months of 2009 was 18.6% lower at R6,23bn compared with R7,66 billion in same period last year. All real values are calculated at constant 2005 prices," he said.

Although the number of residential building plans approved for houses smaller than 80 m² was up slightly (0.5% year-on-year (y/y) to 8 385 units in January-April this year), "major declines" were recorded for houses larger than 80 m² and higher-density housing such as flats and townhouses.

The number of new housing units for which plans were approved was down by 45,9% y/y to 3 717 in April 2009 compared with a number of 6 867 units in April 2008 and 4 151 units in March this year, he pointed out, saying" the April 2009 volumes were the lowest since December 2001".

Other figures highlighted by Du Toit include that:

* In respect of new housing constructed, volumes were down by 18,4% y/y 4 648 units from 5 694 units in April last year and 4 772 units in March this year; and * The total number of square metres in respect of plans approved for alterations and additions to existing houses was down by 24,2% y/y in January-April this year, while the total building area reported as completed with regard to alterations and additions was up by 26,7% y/y in the same period.

"These trends are an indication of the extent to which the market for new housing has slowed down on the back of economic conditions impacting the household sector and the demand for new housing."

In view of an economy that is in recession, and the impact of this on employment and household income, added Du Toit, the expectation is that residential building activity will remain under pressure in the rest of the year.

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