What the steep drop in building plans means

If you wait until next year, you may have trouble finding a home to buy - or end up paying a lot more than you expected.

That’s the message to prospective home buyers from Gerhard Kotzé, MD of the RealNet estate agency group, in reaction to figures from StatsSA which show that the number of plans passed for new residential buildings in the first half of this year is 48% down on the same period of 2019.

“This is mostly due, of course, to the lockdown that was implemented at the onset of the Covid-19 pandemic, and what it means is that there is going to be a big drop in the number of new homes being delivered to market about 12 to 18 months from now – because that is the time it usually takes a housing project to go from the planning stage to completion.”

Meanwhile, he notes, all construction also came to a standstill during the lockdown, and the StatsSA figures show that this caused a 70% drop in the number of homes that were actually completed between January and June, compared to the first half of 2019.

“So right now there are already far fewer new homes available than there would usually be, at exactly the same time as the residential market is experiencing a surge in demand in response to the lowest home loan interest rates in almost 50 years. First-time buyers are especially active, currently accounting for up to 70% of new home loan applications, and this is causing existing lower-priced stock to be absorbed at a very rapid rate.

“It is also already causing a shift towards a sellers’ market in the under-R1,5m price category, and a concomitant rise in home prices as the number of prospective buyers starts to exceed the number of homes for sale and they start to make competing offers for those homes.”

Kotzé says this shift is reflected in the latest statistics from FNB, which show that the average difference between the listing or asking price of properties and the price at which they are actually sold is dropping - and that home prices are currently rising at a rate of 1,4% a year – which is already about double the rate at the beginning of this year.

“And our experience is that prices are currently rising even faster in the flats and townhouses sector - which is the one most favoured by first-time buyers – at least partly because the number of new flats and townhouses completed in the first half of this year was 83% down on the same period of last year and there is thus a limited number of new developments on sale.”

What is more, demand is likely to be reinforced in the coming months, he says, as more investors enter or return to the market and as more existing homeowners decide to upgrade, especially if the Reserve Bank lowers interest rates even more.

“This will most likely coincide with the supply constraints indicated by the current shortage of plans being passed and that will not only make it more difficult for prospective buyers to find homes to buy, but also cause prices to rise much faster than they are at present.

“Consequently, our advice to those currently considering a home purchase, whether they are first time or repeat buyers, is to make a move as soon as possible. If they wait, they could seriously find themselves priced out of the market by this time next year.”

StatsSA figures show that the number of building plans passed for houses smaller than 80sqm in the first half of this year rose by 8% compared to the same period of 2019, but that the number passed for houses greater than 80sqm was 41% down and the number passed for flats and townhouses was 51% down. Plans for additions and alterations also declined, by 43%, and the total value of residential building plans passed fell by 48%, following a 6% decline in 2019.

The records also show that the number of houses smaller than 80sqm completed in the first half of this year was 38% down on 2019, the number of houses greater than 80sqm completed was 55% down and the number of flats and townhouses completed was 83% down. Residential additions and alterations completed also declined, by 35%, and the total value of residential construction completed fell by 70%, following an 11% increase in 2019.

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