Gloom for residential builders

2008-01-24 00:00

Gloomy times await the residential building sector, according to the FNB CPF Residential Building Cost Index, for the fourth quarter of 2007, constructed by Industry Insight.

Released yesterday, the index revealed further slowing down in residential building cost inflation, the fifth consecutive quarter of declining year-on-year inflation following a significant surge in building cost pressures last year.

The slow-down is believed to be reflective of a residential market increasingly under pressure from the lengthy period of interest rate hiking, along with a slowing economy.

The index reflects the average building cost per square metre as charged by building contractors when winning tenders in the formal residential property sector.

The average building cost per square metre was measured at R5 264 for the fourth quarter.

Year on year, building cost inflation measured 4,7% for the fourth quarter. This is a further decline from the revised 10% registered in the third quarter, and well-down from the 38,8% peak reached in the third quarter of 2006.

FNB Property strategist John Loos said that contractor pricing power is expected to suffer as a result.

"Furthermore, the relative strength at the lower end of the market, the result of an affordability deterioration over the boom years, may be an increasing incentive for a portion of development activity to shift away from the more luxurious end of the market towards the lower, less frills, end. Such a shift can also have an impact on the index’s price inflation rate."

It is also possible that the lower inflation rate is partly reflective of lower materials cost inflation, which has shown some decline, over the past three quarters.

"This is indicated in the producer index for building materials, which averaged 8,8% year on year for the first two months of the fourth quarter, well lower than a 15,9% peak in the first quarter of 2007."

He noted that the near term outlook for residential builders looks bleak, adding that the downturn in the index inflation rate could move into negative territory during the first half of this year.

"This would not necessarily reflect a decline in building contractors’ input costs, but more a reduction in their pricing power due to weak market conditions."

The main building sector indicators (new residential mortgage loans granted, new mortgage loans granted for construction of buildings, growth in square metres of new residential space completed etcetera) point to weakening in activity levels.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.