The cost of having a new house built increased by 8,5% y/y in the second quarter of 2016, after increasing by 5,1% y/y in the preceding quarter.
Factors impacting building costs include building material, equipment, transport, labour, developer and contractor profit margins, and the cost of developing land for residential use, which includes the cost of land, rezoning and infrastructure.
According to Absa Home Loans analyst, Jacques du Toit, consumer confidence will continue to impact the property market in terms of demand and supply conditions; buying patterns; market activity; transaction volumes; building activity and mortgage providers’ risk appetites. These factors will eventually be evident in growth in household mortgage balances, which is expected to remain subdued for the remainder of this year and into 2017.
Based on the economic and household sector-related trends and expectations, nominal house price growth is forecast at between 4% and 4,5% for 2016 and 2017, with the risk of price growth remaining on the downside over this period. Real price deflation of between 1,5% and 2,5% is expected for this year and next year. Residential building activity and levels of confidence across the building sector will remain subdued over the short to medium term.
Consumers’ spending power is set to be further eroded, which will limit their ability to service debt and take up further credit. The low level of consumer confidence is expected to continue and may deteriorate even further from its current level, with confidence remaining an important factor in the demand for credit.