Residential Investment Growth in SA to Slow Further

Drop in Building Plans Passed

An article in Business Day reports that building plans passed for the private sector have fallen by a seasonally adjusted 1.7% in the first quarter of the year, compared to the same time last year, according to official data.

Residential building plans account for half the total of plans passed and these fell by 8.9% over the same period, which is a trend taking its cue from interest rate hikes and a drop in property prices. Statistics SA said that while residential building plans passed showed a decline, non-residential building plans rose 8.8% and alterations indicated an increase of 6.7%.

“We are still in an environment where building plans are lower than a year ago,” said Citigroup’s South African economist, Jean-Francois Mercier. “It suggests residential investment growth will slow further.”

Since June 2006, interest rates have increased by 4.5 percentage points, a bid by the Reserve Bank to slow inflation, which has been aggravated by rising world fuel and food prices. This has caused household debt costs to escalate to 11% of disposable income, consequently curbing consumer spending and bringing a halt to a seven year rally in house prices.

According the ABSA, the country’s biggest mortgage lender, house prices are falling in real terms this year. Compared with the last quarter of last year, the number of building plans passed rose 15.8% in the first quarter of 2008, with non-residential buildings taking the lead.

The official figures cover the value of building plans passed by large municipalities, which is adjusted at constant prices for 2000. In March, the value of building plans rose 6.9% when compared with the same time last year.

The information in this article is courtesy of Mariam Isa (“South Africa: Building Plans Passed Drop 1.7 Percent”, Business Day, 22 May 2008).

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