Building statistics point to a housing sector to remain under pressure in 2009

Residential building statistics released by Statistics South Africa for January 2009 show a continuation of the slowdown in building plans approved for new housing, while the construction side has improved somewhat in the second half of last year, but showed some weakness again early this year.

In January 2009, residential building plans with a total real value of R1,17 billion were approved by local government institutions, which was 47,3% lower compared with R2,22 billion in January 2008. However, the real value of residential buildings reported as constructed in January this year was up by 7,8% year-on-year (y/y) to R1,45 billion compared with R1,35 billion in same month last year. All real values are at constant 2005 prices.

The number of residential building plans approved for houses of ≥80 m² and flats and townhouses was down by a massive 41,4% y/y to 2 206 units in January this year (3765 in January 2008). This is an indication that these two segments of housing will probably continue to experience relatively low levels of construction during the course of 2009. At the lower end of the market, i.e. houses of <80 m², the number of building plans approved increased sharply by 231,2% y/y to 3 365 from only 1 016 a year ago. This is a positive development with regard to the future supply of affordable housing this year.

On the front of new housing constructed, volumes at the lower end of the market (houses of <80 m²) were 14,7% lower at 1 726 units in January 2009 from 2 032 units completed in December last year, taking into account that both months incorporated a period of no activity due to the holiday season. In respect of houses of ≥80 m² and flats and townhouses, 2 952 units were reported as completed in January compared with 3 200 units completed in December last year, which came to a decline of 7,8% month-on-month.

The rapidly deteriorating economic conditions are set to have an adverse impact on the demand for new housing this year, as many households will be under pressure in view of expected further job losses in many sectors of the economy. This will influence consumer sentiment and confidence levels.

The South African Reserve Bank announced today that the Monetary Policy Committee (MPC) will meet on a monthly basis in the rest of 2009, except in July, to review monetary policy. This announcement implies that interest rates might be changed more frequently during the course of the year depending on the underlying circumstances and economic conditions impacting monetary policy.

The next MPC meeting will be held next week, 23rd and 24th March and the expectation is that the repo rate will be cut by 100-150 basis points, which will prompt commercial banks to cut their lending rates, i.e. prime and variable mortgage interest rates, by the same magnitude.

Courtesy Jacques du Toit Senior Economist ABSA Bank

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