Residential building activity has slowed significantly on the back of higher interest rates and a softer housing market, placing would-be homebuilders in a good position to negotiate tender prices with contractors.
FNB property strategist John Loos says residential developers are facing tough times as demand for new housing as well as alterations and additions continue to slow. Building plans passed for residential alterations and additions have already dropped by 3% in the three months to November 2007 (y-o-y). Loos expects residential building completions to be 5% to 10% lower in 2008 than last year.
Increased competition among developers and building contractors for new business is already placing pressure on profit margins. FNB's Residential Building Cost index - based on tender prices - shows that building cost inflation slowed to 4,7% in fourth quarter 2007. That is sharply down from a peak of close to 39% in third quarter 2006. Loos says it now costs R5 264/sq m to build the average, middle-sized house (excluding affordable and so-called RDP houses).
He expects pricing power to continue to suffer over the next six months. Although that is bad news for developers, it does of course create opportunity for consumers to negotiate more competitive prices with contractors. In fact, latest data from Absa Bank show that it already costs less to build a new house than to buy an existing one. (Read More...)
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