News Residential

Residential building activity anticipated to peak

The StatsSA November 2021 release of residential building plans passed show a year-on-year decline in the number of unit plans passed to the tune of -13.6%.

According to FNB, for the three months to November 2021, the year-on-year growth rate was still a positive +12.3%, but this too reflects a slowing growth trend for the fifth consecutive month.

After a sharp surge in building plans passed in Q2 2020, the upward ‘normalization’ in building activity appears to be coming to an end as the growth pace in plans passed slows down.

Given the time lag to plans passed, new residential units completed for November were still growing strongly (40.11% year-on-year for November) and by +26.34% year-on-year for the three months to November 2021.

We expect the level of residential building activity to peak during 2022, and possibly even show some decline later in the year”, commented John Loos, Property Sector Strategist at FNB. “The reasoning for this is, firstly, that the upward normalization in building activity, off a low 2020 base, created by hard lockdowns disrupting market and building activity, is probably more-or-less complete”.

Secondly, and most importantly, the new residential development market is sensitive to interest rates, which started to rise in November 2021. The FNB forecast is for a further three 25 basis points interest rate hikes this year. That, coupled with economic growth also tapering off after a post-lockdown resurgence, is expected to cool the residential building sector later in 2022”.

While units completed still grow strongly, slowing growth rates in the number of plans passed, the leading indicator of residential building activity, already point to such a peak approaching”, he concluded.