From the Desk of the MD - July 2018

It may be winter but the latest building statistics from StatsSA contain news that should give the real estate industry - and home sellers in particular - a warm glow.

These figures show that the average cost of having a new home built increased by an inflation-beating 5,5% in the first four months of this year compared to the same period of 2017 - and that there was a particularly steep increase of 15,5% in the small home category that is favoured by first-time buyers.

In actual terms, the average cost of building a new home in SA is now R7437/sqm, and the average cost of building a new small home is now R5485/sqm - and what this means is that it is substantially cheaper, in most instances, for home buyers to opt for a pre-owned home from an individual seller than a newly-built one from a developer.

Of course the price per sqm of existing properties varies widely depending on location and the type of home, but the FNB Property Barometer noted in January that the average price difference between pre-owned homes and newly-built homes was already over 28% and rising, which is now confirmed by the latest StatsSA figures.

What is more, although this makes it difficult for developers to deliver new homes to the market at competitive prices right now, it will ultimately do the whole market good because it will steadily reduce the supply of pre-owned homes for sale and bolster prices across the board.

At that stage things will again become easier for developers, and the StatsSA numbers also show that they are confident of this happening, and of higher demand in the newly-built sector in due course, with the number of building plans approved for new housing having risen 18,8% in the first four months of this year compared to the first four months of last year.

This growth occurred mainly in the small house (25,5%) and flats & townhouses (25,3%) segments, and since most building plans take about 18 to 24 months to translate into actual brick and mortar, we can expect to see large numbers of such units coming to market again from the start of 2020.

In actual terms, the plans passed from January to end-April were for almost 7000 small homes and more than 8000 flats and townhouses - or about double the 3000 small houses and 4500 flats and townhouses which were completed during those four months. So there are clearly lots of property market experts who believe things are looking up...