SA Building Plans June 2010

Stats SA released the building statistics earlier this week, for June 2010. Overall building plans passed were up 0.9%q/q in Q2 2009, which compares with a decline of 5.9%q/q in Q1 2010. In the first half of 2010, building plans passed remain 14.3% below the level in the first half of 2009.

Importantly, there is a noticeable difference in the performance of residential building activity vs commercial building. While commercial building development remains under pressure, residential activity appears to have passed the worst, and is now showing tentative signs of improvement. In Q2 2010, residential building plans passed rose by a very encouraging 7.8%q/q, which is in contrast with a further decline of 1.7%q/q in commercial building development. In the first half of 2010, commercial property development is down a massive 35.3%y/y, while residential building plans passed are only down 5.0%y/y. This divergence is performance is typical for this phase of the business cycle and is reflected in other indicators of property activity.

For example, while commercial property rentals are under pressure (especially office space) and vacancies are on the rise, residential property prices have risen noticeably over the past year. The ABSA property survey shows that residential property prices have risen by an average of almost 15% in the past year. In addition, residential mortgage financing activity has improved marginally in the past few months, albeit off a low base in the early part of 2009.

The current tentative improvement in residential property activity is expected to continue over the next couple of years, helped by relatively low interest rates, a modest improvement in consumer income, an easing of bank credit conditions and the long-term structural shortage of residential property. This does not, however, imply that SA is about to experience another boom in residential property prices. The extreme undervaluation of residential property prices, which prevailed in the 1980s and 1990s, has been closed.  Rather, the unfolding economic conditions should provide ongoing, but modest, support to the residential property market in terms of both building activity and property prices.

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