FNB reports slightly better Q1 2016 building stats which it says may point to slightly less economic weakness in the near term, and some positive growth in the number of housing units completed to come.
- As at Q1 2016, the SARB (Reserve Bank) reported low levels of residential fixed investment relative to the size of the country’s economy. At 1.3% of Gross Domestic Product (GDP), the level remained well below the 2007 high of 2.7% of GDP – a level that had been reached at the back end of South Africa’s greatest residential boom on record.
The completion of the Q1 2016 residential building picture, with this week’s release of StatsSA Building Stats, suggests that the level of residential fixed investment for Q1 was not too different from the prior quarter, but may have risen slightly.
- At 1,112m square metres in Q1 2016, we are up on the 1,034m square metres worth of home completions for Q1 2011 (the 1st quarter post-2008/9 recession low point), but at only 56% of the 1,983m square metres achieved in Q1 2007.
- During Q1 2016, the square metreage of residential buildings completed rose slightly by 1.8% year-on-year. This comes after a slight decline in the prior quarter to the tune of -1.3%, but represents a significantly slower rate compared to the 28.8% growth high achieved in Q2 2015.
- Despite a very slight rise in completions, Q1 square metreage of residential plans passed didn’t point to any near-term growth acceleration in square metres of building likely to come, having declined year-on-year by -2.4%. This rate of decline, however, was slightly smaller than the previous quarter’s -3.8% rate. The number of units’ plans passed did rise, however.
The FNB full title replacement cost gap partly explains currently mediocre residential building levels. The replacement cost gap represents the percentage by which the replacement cost of the average existing full-title house differs from the average existing house value. The gap remains significant at 25.3%, meaning that it is challenging for the development sector to bring stock to the market that is competitively priced relative to existing homes.
- Building plans passed, excluding homes smaller than 80m2, is a useful leading business cycle indicator. This measure returned to slightly positive growth in Q1 2016. This, along with slightly less deterioration in the “negative growth rate” of the OECD Leading Business Cycle Indicator, may suggest that the economy’s recent pace of deterioration may be “slowed” or “stalled” in the near term.