19 November 2022
Quoted from the source. (https://businesstech.co.za/news/property/644099/red-flags-for-south-africas-property-market/)
Residential building plans have slowed into negative growth territory in South Africa, reported Absa.
John Loos, a property sector strategist at FNB Commercial Property, reported that over the third quarter of this year, housing demand has cooled.
During the quarter, the numbers have pointed to a weakening in new residential planning, which is likely an indicator of slowing building activity to come in the near term, said Loos.
Loos said that this is likely due to:
- Rising inflation
- Hiked interest rates
- The knock-on effects of rising costs in mortgage debt servicing
The property strategist found that growth turned negative by a total of -12.9% when compared to last year. Interestingly, this comes off the back of a +11.8% increase over the second quarter of this year.
Contrary to a complete recovery from the pandemic, this marks a 5th consecutive quarter of tapering growth in plans passed.
The levels and direction of plans indicate that building activity is expected to slow down, particularly in residential buildings.
“However, it was still too early to see negative growth in completions as of the 3rd quarter of 2022, with the number of units completed still growing positively year-on-year by +3.5% in that quarter. However, this growth rate represents a marked slowdown from the +19.6% rate of the prior quarter,” said Loos.
The final quarter of 2022 can expect to see the growth rate in the level of residential units turn negative, he added.
Due to the residential market being highly credit-dependent and thus interest rate sensitive, the slowing in planning activity reflects the combination of recent rising inflation and interest rates.
Both increases eat into aspirant home buyer purchasing power growth.
In addition, the economy looks to have come under renewed pressure from global sources as well as the inflation and interest rate rises, which can dampen household employment and income growth, said the FNB strategist.
In expectation of a 100 basis point increase, there is likely to be a further year-on-year decline in the level of residential plans passed late in 2022 and early in 2023, following a good period of post-lockdown growth, said Loos.
“2023 is expected to be a slower year overall for residential building activity than 2022 due to the lagged impact of interest rate hiking continuing to feed through next year.”
All three housing categories showed negative growth in plans passed in the 3rd quarter:
- Free-standing units smaller than 80 square meters showed a decline of -39.2
- Houses larger than 80 square meters, -2.77%
- Flat and townhouses, -26.8%