Residential building statistics released by Statistics South Africa for the period January-July 2008 indicate that activity in the home building sector are still under severe pressure, despite some improvement with regard to building plans approved in July compared with June.

In the first seven months of 2008 the real value of building plans approved by local government institutions for new residential buildings was 18,6% year-on-year (y/y) lower at R12,61 billion, which was R2,88 billion less than the R15,49 billion recorded in the same period last year. All real values are at constant 2000 prices.

In volume terms residential building plans approved for the three major segments of the market (houses of <80m², houses of ≥80m² and flats and townhouses) dropped by 19,8% y/y to 50 236 units in January-July 2008 compared with 62 634 in the same period last year. The markedly lower number of plans approved for new housing in the first seven months of the year compared with a year ago will result in a lower number of units constructed in the rest of 2008 and into 2009.

The real value of new residential buildings completed was down by 14,1% y/y to R8,81 billion in the period January-July 2008. This was R1,45 billion less than the R10,26 billion recorded in the same period last year.

In January-July this year the number of new housing units constructed in the abovementioned three segments of the market was 14,8% y/y down at 37 722 from 44 294 units completed in the first seven months of last year.

At a regional level, the number of plans approved for new housing units was lower in eight of the nine provinces in the period January-July 2008 compared with the same period last year. In Gauteng, the Western Cape and KwaZulu-Natal, with a combined share of 77,6% of the national total, a decline of 15,7% y/y occurred in the number of plans approved in January-July, to a level of 39 008 from 46 266 a year ago. However, of the three provinces, it was only Gauteng that recorded a drop in volumes. In terms of the number of housing units completed at provincial level, seven of the nine provinces recorded a drop on an annual basis in January-July this year.

On the front of alterations and additions to existing houses the total square meters for which plans were approved have slowed down by 20,6% y/y in the first seven months of 2008. With the household sector under severe financial pressure as a result of rising inflation and interest rates over the past two years, activity with regard to alterations and additions to existing properties has also tapered of markedly.

In view of these developments on the building and construction front, confidence in the sector has dropped to levels last seen in late 2001. This is a clear indication of current conditions and the prospects for this sector in the economy over the short to medium term.

The expectation is that the residential building and construction sector will continue to experience difficult business conditions for the rest of the year and into 2009 on the back of macroeconomic and household sector related developments and trends.

Courtesy Jacques du Toit Senior Economist ABSA Bank 

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