Property Barometer – 1st Quarter Residential Building Sector Review

Slightly better 1st quarter building stats may point to slightly less economic weakness in the near term, and some positive growth in the number of home units completed to come.

– As at the 1st quarter of 2016, the SARB (Reserve Bank) reported low levels of Residential Fixed Investment relative to the size of the country’s economy. At 1.3% of Gross Domestic Product (GDP), the level remained well below the 2007 high of 2.7% of GDP, a level that had been reached at the back end of South Africa’s greatest residential boom on record.

– The completion of the 1st quarter 2016 residential building picture, with this week’s release of StatsSA Building Stats, suggests that the level of Residential Fixed Investment for the 1st quarter was not too different from the prior quarter, but may have risen slightly.

– At 1.112 million square metres in the 1st quarter of 2016, we are up on the 1.034 million square metres’ worth of home completions for the 1st quarter of 2011 (the 1st quarter post-2008/9 recession low point), but at only 56% of the 1.983 million square metres achieved in the 1st quarter of 2007.

– During the 1st quarter of 2016, the square metreage of residential buildings completed rose slightly by +1.8% year-on-year. This comes after a slight decline in the prior quarter to the tune of -1.3%, but represents a significantly slower rate compared to the 28.8% growth high achieved in the 2nd quarter of 2015.

– Despite a very slight rise in completions, 1st quarter square metreage of Residential Plans Passed didn’t point to any near term growth acceleration in square metres of building likely to come, having declined year-on-year by -2.4%. This rate of decline, however, was slightly smaller than the previous
quarter’s -3.8% rate. The number of units’ planes passed did rise, however.

– The FNB Full Title Replacement Cost Gap partly explains currently mediocre residential building levels. The Replacement Cost Gap represents the percentage by which the replacement cost of the average existing full title house differs from the average existing house value. The gap remains significant at 25.3%, meaning that is challenging for the development sector to bring stock to the market that is competitively priced relative to existing homes.

– Building Plans Passed, excluding homes smaller than 80 square metres, is a useful leading business cycle indicator. This measure returned to slightly positive growth in the 1st quarter of 2016. This, along with slightly less deterioration in the “negative growth rate” of the OECD Leading Business Cycle Indicator, may suggest that the economy’s recent pace of deterioration may be “slowed” or “stalled” in the near term.

Read more here: FNB Property Barometer_Building_Construction_Review_20_May_2016