Search Property For Sale

Growth surge in building is good news, but is not expected to last

Google+ Pinterest LinkedIn Tumblr +

Surge is not going to last and this is borne out by the number of unit plans passed for the three months to May.

The interesting effect of the property market lagging behind political events has been reaffirmed by the Stats SA building statistics released last month which showed strong growth in residential buildings completed in May.

The number of units completed showed a year-on-year growth rate of 56%, following the prior month’s 24.4%. John Loos, property sector strategist with FNB, says when smoothing the data using a three-month average growth rate, the number of units completed for the quarter to May grew by “an impressive 71.86%”.

Loos believes these figures are the result of the brief period of positive sentiment that followed Cyril Ramaphosa’s election as ANC president late in 2017, followed by him becoming president of the country in February last year.

“At that point we saw a surge in the growth in number of building plans passed and this appears to be the lagged impact of that surge coming through in the form of strong completions.”

But the surge is not going to last and this is borne out by the number of unit plans passed for the three months to May. Loos says these showed a year-on-year decline of -19.14%.

“This is usually a leading indicator of building completions about to experience a near-term decline, which would be more in line with leadership change excitement having worn off and an economy with little growth.”

Ben Shaw, chief executive of the online rental platform HouseME, says property remains one of “the most stable, long-term out-performers”. But he warns a recovery will take time.

“Investors expecting a turnaround before mid-2020 are in for disappointment. However, prudent buyers will enjoy the resultant pressure this creates in the market because as long as the population grows, housing will be in increasing demand in the long run.

Shaw says currently the residential market on the demand side is characterised by declining disposable income and low business confidence. However, he points out this is cyclical.

“Demand for residential property continues to show volatility on a monthly basis but is unlikely to pull up pricing in the short term.” New residential builds are decreasing, with plans passed in Q1 dropping by 26% compared to last year.

“Property developers who had medium-term contracts are only just finishing work commissioned three years ago and the impact of overstocking the market has taken its toll on investment appetite.”

Loos says sectors other than residential, such as office space, have also shown “surprisingly good” completion rates, although vacancy rates are a concern. 

He says office space completions look set for a near-term slowdown, with the square meterage of plans passed for this category over the past 12 months less than half the level around 2014, and the 12 months to May’s plans passed showing year-onyear decline of -18.94%.In the industrial and warehouse space sectors, completions grew by +0.94% using the 12 month average to May.


About Author