Absa: New housing construction expected to decline on the back of lower demand and a bleak economic outlook for 2009

The latest Statistics South Africa (Stats SA) residential building statistics show a continued slowdown in residential building activity for the period January-November of 2008, as this category of the property sector battled to cope with significantly lower demand for new housing.

In the period January-November 2008, a total number of 77 998 residential building plans were approved by local authorities with a total real value of R17,85 billion. This figure was 25,5% less year-on-year (y/y), when compared to R23,98 billion recorded for the period January-November 2007. All real values are at constant 2000 prices.

The number of residential building plans approved declined by 17,8% y/y for all three major segments of the market (houses of

The number of residential buildings completed across all three major segments from January to November 2008 showed a decline of 8,9% to 64 473 units when compared to the total of 70 766 units completed in the previous year, at a total real value of R14,83 billion, which was R1,55 billion less than the same period the previous year.

At a regional level, though also taking strain due to prevailing economic conditions, Gauteng and the Western Cape retained their lead with 43,5% and 21,3% of total plans approved between January and November 2008. Though being in the lead, Gauteng showed a decline of 25,0% y/y, while the Western and Eastern Cape both registered positive y/y growth of 3,1% and 4,9% respectively.

In terms of residential buildings completed, three of the nine provinces recorded positive y/y growth, with Gauteng at 0,5%, Mpumalanga at 25,0% and KwaZulu-Natal taking the lead at 30,3%. The Free State recorded the biggest drop (-56,7%), followed by the Northern Cape at -38,5%, Limpopo at -28,7%, the Western Cape at -24,8%, the Eastern Cape at -19,3% and North West with a decline of 15,3% y/y.

Based on the impact of deteriorating economic conditions on the demand for new housing, expectations are that the construction of new residential buildings will remain under pressure in 2009, as the economic outlook for the year is bleak, and signs of improvement in economic activity are only expected to start showing in the second half of 2009.