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Prospective Buyers' Dreams Fade
Property24
24 April 2007
South Africans who haven't entered the housing market, find their chances of owning their own house diminish further every day.
South Africa is currently experiencing a building and construction bloom, and several factors are pushing up building costs. Most speakers at Industry Insight's Construction in Business presentation held in Sandton recently agree that the house market is likely to be hit hardest by fast increasing building costs.
According to Mr Jacques du Toit, senior economist for Absa, the cost of building a new house in the middle segment of the house market (80sq m to 400sq m) was held above the inflation rate during 2006 by factors such as a strong demand for building materials and shortage of skilled labour.
According to Absa's latest house price index, the average price of a house in February this year was R891 713, compared to R772 915 in February last year, which just shows how expensive South African houses have become.
"The nominal growth of house prices for February is 15,4% year on year, which shows that housing is still getting more expensive, although at a slower pace. In all probability, this should still be the case next year," he says.
Industry Insight's building cost index, which measures the average building cost per square meter, based on the multi-unit residential contracts awarded, shows that building costs for house construction in 2005 was R3 600/sq m on average. In 2006, building costs increased by 15% to R4 100/sq m on average.
Higher transport related costs, less competition in tenders and a shortage in building material in KwaZulu-Natal in particular lead to building costs in this region and the Western Cape to increase to R5 100/sq m and R4 700/sq m respectively.
According to Ms Elsie Snyman, chief executive of Industry Insight, affordability is a growing problem, and the section of the market in which demand for housing is greatest, is suffering most. Existing houses are also out of reach of first-time buyers, she says.
In his presentation, Dr Johan Snyman, construction economist and director of Medium-Term Forecasting Associates, said that tender competition drops in a growth phase because there is a lot of work available. This leads to building contractors increasing their profit margins, and building costs increase quickly.
According to Mr John Loos, property economist of First National Bank (FNB), the reality is that the South African housing market is on its way to higher prices, and first-time buyers who wait in the hope of a bargain, will be disappointed. – Elma Kloppers
Original article published at www.property24.com.
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