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Growth in residential building activity all but grinds to a halt late in 2015 – FNB


The South African Reserve Bank finds the number of Residential Building Plans Passed for Flats, Townhouses and Dwelling Houses Larger than 80 Square Metres, to be a useful Leading Business Cycle Indicator. As such, this data is included in the SARB’s Composite Leading Business Cycle Indicator along with a host of other data says FNB Home Loans household and property sector strategist John Loos in the latest edition of the Property Barometer.

This implies that this grouping of Residential Building Plans Passed can be a useful indicator of the economy’s performance direction in the short term.

Sadly, this indicator is yet another one that points towards near term economic growth weakening as we enter 2016. In November 2015, the number of Residential Plans Passed for Flats, Townhouses and Dwelling Houses Larger than 80 Square Metres declined year-on-year by -23.03%, after an October decline of –21,3%. To smooth what is a volatile data series, we also calculate a 3-month moving average, whose year-on-year decline had also reached a significant -13.78% for the 3 months to November. This is well down after a slide from a high of +23.9% as at April 2015.

Therefore, insofar as residential building plans are a leading economic indicator, they add further support to the expectation that the economic growth slowdown probably has further to go in the near term.


Getting to total building activity, including Dwelling Houses Smaller Than 80 Square Metres, for November 2015, sq.m. worth of residential building completed grew by +3.99% year-on-year. This represents an increase on the prior months’ -13.05% decline.

However, as monthly data is volatile, we prefer to analyse trends through smoothing the data with a 3-month moving average. Here we see a continuation of the recent slowing growth trend in completions. For the 3 months to November, year-on-year growth of +1.25% represents a slightly slower rate than the +2.76% increase for the 3 months to October, as the growth rate now hovers very near to the zero mark. This growth is markedly lower than the +28.8% year-on-year high recorded for the 3 months to June.

The 3 month moving average for sq.m. of Residential Plans Passed, too, has been recording broadly slowing growth, when we smooth the volatility, from a 15.23% high for the 3 months to April 2015, to -6.35% year-on-year decline for the 3 months to November.

A similar weak growth picture is witnessed when examining the number of residential units completed, as opposed to the square metres. Here, too, we saw a rise in the year-on-year growth rate from a -23.21% decline in October to +16.8% in November 2015. But smoothing out the month-to-month volatility using the 3 month moving average, we see a continuation of the slow growth to the tune of +1.36% for the 3 months to November, slightly up from -2.7% in the 3 months to October.

Therefore, the period of positive building completions growth that dates back to late in 2014 appears to have all but petered out, monthly data volatility aside.

The level of building completions remains moderate compared to the boom time peak reached late in 2005. Whereas for the 3-months to December 2005 2.706 million square metres were recorded as completed, the 3 months to November 2015 recorded 1.405 million, just over half of the late-2005 peak level.


Building costs have for a while appeared to limit the ability of the Development Sector to bring “competitively priced” new homes to the market. For the 3 months to November, the year-on-year average value of units completed rose by 3.9%, and of plans passed by 8.1%.

This inflation rate is noticeably lower than the high of 20.8% year-on-year for units completed, recorded in May 2014, but remains in rising territory nevertheless.

We may, however, be seeing the start of the development sector’s attempts to address affordability constraints by reducing the average size of homes built. From 135.6 square metres for the 3 months to September, the average size of units completed declined to 128.7 sq. m. for the 3 months to November.


In short, therefore, Residential Plans passed, excluding dwelling Houses smaller than 80 square metres, can be a useful leading business cycle indicator, and their broad year-on-year decline of late points to further near term economic growth weakening.

Simultaneously, residential building stats reflect economic and property conditions. Various of our FNB property economic data points towards slowing demand and easing residential supply constraints in the existing home market of late.

This, along with Plans Passed growth already in negative territory, suggests slowing level of building completions to come in 2016.

Increasingly financially constrained times also lead us to expect a smaller average size of home to be built in 2016.


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