May residential buildings plans passed showed further significant year-on-year decline due to the series of interest rate hikes impacting demand for new residential units, while a slowing economy has exerted pressure on household income growth, FNB Commercial Finance senior economist John Loos said in the bank’s latest Property Insights.
With the SA Reserve Bank’s Monetary Policy Committee keeping interest rates on hold this month, the country may have reached the end of the interest rate hiking cycle, he said.
However, FNB only expected interest rate cutting to start in 2024, and the full impact of the recent rate hiking and economic slowdown likely still had to be felt on residential demand, he said.
“We expect some ‘levelling out’ on the level of residential building plans passed in the second half of the year, but probably no significant recovery until next year,” said Loos.
May 2023 building plans passed, as released by Stats SA, declined year-on-year by -38.51% after a prior month’s decline of -15.07%.
For the three months to May, the year-on-year rate decline was -18.08% year-on-year, following a decline of -3.08% year-on-year for the three months to April.
“Demand for both existing and newly built residential property has thus understandably weakened considerably, following a post lockdown “mini-recovery”, he said.
Building plans passed for the three months to May 2023 were 18.9% below the three months to May 2019 and 32.9% below the three months to May 2018.
The “flats and townhouse category showed the least significant decline of -14.7% for the 3 months to May. The most affordable dwelling houses smaller than 80 square metres” showed the sharpest rate of decline of -38.6% year-on-year.
Growth in these two segments combined, excluding free-standing homes smaller than 80 square metres, showed a negative decline of -27.64% year-on-year.
“The May residential building plans passed data points to ongoing weakness in the residential building sector and likely further decline in building completions to come in the near term,” Loos said.
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