Is It Becoming Too Expensive to Build?

For many South Africans it’s a dream come to true to design and build their own homes to meet their individual needs, in a style that best suits them. Unfortunately the latest data from Absa Home Loans indicates that building a new home is just becoming too expensive, especially during this period of economic uncertainty and rising electricity costs.

“We’re seeing demand for existing housing, especially in the lower end of the market (i.e. properties under R1.5 million) but new housing developments have become scarcer (save in a few areas) as construction costs soar”, explains Bruce Swain, MD of Leapfrog Property Group. 

The data from Absa reveals that the average price gap between existing homes and new homes was a mere 1 percent or R9 500 in 2007 – based on a housing sized of 80 to 400m2.  In 2014 that gap had increased to 30.5% or R458 000.

Average price gap between new and existing houses:

2014: 30.5 percent or R458 000

2013: 35.1 percent or R615 000

2012: 34.5 percent or R553 000

2011: 31.6 percent or R478 000

2010: 27.5 percent or R386 000

2009: 20.5 percent or R256 100

2008: 11.9 percent or R128 400

2007: 1 percent or R9 500

2006: 2 percent or R16 700

During the first quarter of 2015 existing house prices rose by 7.2% year on year to R1, 291 300 while the cost of building a new home rose by 3.9% to R1, 869 400, making it R578 100 more expensive to build than to buy.

Jacques du Toit, a property analyst for Absa Home Loans concurs that this disparity is caused by escalating building costs which he says has continued to increase faster than consumer price inflation in recent years. 

Where to from here?

While prohibitive construction costs are good news for sellers in the short term - because more prospective homeowners will look to rather buy than build - the situation could eventually put too much pressure on the built market where buyers will struggle to find a home to buy and / or the cost of existing homes will become too high. “This situation can’t go on forever as we’re a growing nation that will need more property development, and it is my belief that government and the private sector will need to join hands to make this more financially viable for new home owners”, says Swain.