Flat and townhouse construction in stark decline

The number of flats and townhouse units completed in the five months to May surprisingly contracted by more than 22 percent compared with the same period last year.

Figures released by Statistics SA revealed that the number of flats and townhouse units declined to 4 067 in the five months to May this year from 8 703 units in the same period last year.

However, the number of houses completed in this period of the two categories of houses, less than 80sqm and greater than 80sqm, both increased by more than 20 percent year on year.

Jacques du Toit, a property analyst at Absa Home Loans, admitted on Friday that he was surprised by the contraction in the completion of flats and townhouses in this five-month period, particularly as this was the residential property segment in the major metros where large housing developments had taken place in the past few years.

He said the flat and townhouse segment had been growing because of affordability and the availability of land, with smaller higher density units also favoured for security reasons and their better location.

Du Toit said Statistics SA data indicated that building activity in the market for new private sector financed housing had not performed particularly well in the first five months of this year compared with last year.

He said the planning phase, as reflected by the number of building plans approved, contracted up to May while the construction phase reflected by housing completions achieved single digit growth.

Du Toit said the number of new housing units for which building plans were approved increased by less than 1 percent year-on-year to almost 27 000 units in the five months to May.

This was the net result of growth of just below 4 percent year on year in the number of plans approved in houses larger than 80sqm and flats and townhouses, while plans approved for houses smaller than 80sqm contracted by 8.6 percent year on year. Du Toit said residential building activity continued to be driven by economic, household finance, consumer and building confidence factors and activity levels would remain relatively subdued during the rest of the year.

John Loos, a household and property sector strategist at First National Bank (FNB), said the growth rate in the residential building completions shot back into strongly positive growth territory in May after a sharp dip in March and insignificant growth in April.

He said they did not get too excited about monthly figures, which were volatile, but the return to positive growth was more in line with FNB's prior expectations.

He said FNB expected positive growth in the number of units completed this calendar year, despite signs of slowing demand growth in the existing home market because completions lagged the overall residential cycle and there were existing market stock constraints in many areas of the country in recent years.

In addition, there was a 12.6 percent growth in residential plans passed last year, leading to expectations this would lead to some growth with a lag in units completed.

Loos said FNB was projecting an 8.5 percent growth in the number of residential units completed this calendar year compared with the 8.3 percent decline last year and anticipated slowing growth next year in a lagged response to expected further interest rate hikes in the second half of this year.

However, Loos said residential building completions in May remained a mere 46.4 percent of the level recorded at the end of 2006 and were "a far cry from those boom time highs".

Source: Business Report