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While latest property data indicates that prices of existing houses have already started to drop, the cost of new sectional-title developments is likely to continue to rise at double-digit rates in 2008.

That will no doubt come as disappointing news to prospective homebuyers who were hoping that prices of new residential units would soften on the back of the general slowdown.

While latest housing indexes show that house prices in March year-on-year, building costs have not slowed to the same extent, suggesting that the cost of newly built stock will continue to climb.

Standard Bank property economist, Sizwe Nxedlana, says skills, materials and electricity constraints are likely to keep upward pressure on building costs.

That would render supply of new housing in certain lower-income markets unfeasible, while continuing to have a negative effect on affordability in higher price bands.

John Chapman, a director of property developer Rabie Group, confirms that higher building prices and interest rates are affecting prices of new apartment stock. He expects building costs to increase by a further 10% this year. Chapman says these increases will have to be passed on to the consumer.

He added that they are seeing some large increases in building material costs, notably steel, copper and concrete.

If existing house prices continue to soften while building costs continue to rise, new houses could very well again become significantly more expensive than existing ones.

(Property24/Joan Muller)

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