South Africa: construction costs threaten industry

South Africa: construction costs threaten industry
Published: 04 March 2011

The price gap between an existing and new house is at a new record level and it is now 33.8% cheaper to buy an existing house than to build a new house. This suggests that an improvement in activity levels in the beleaguered building industry is a long way off as demand for new houses is likely to remain low, negatively impacting cement sales.

Pretoria Portland Cement (PPC) was concerned about the outlook for the local building and construction industries in the short term as cement sales fell 5% for the quarter to December and were still falling. PPC clamped down on overhead costs other than advertising and strategic projects because of the severe downturn in the industry.

The increasing price gap between existing and new properties was revealed in the latest Absa quarterly housing review. Absa said the average price of an existing house dropped by 0.7% YOY to about ZAR991,700 (US$143,471) in the fourth quarter, which meant it was 33.8% cheaper to buy an existing house than to have a new home built in this quarter. It was 29.5% cheaper to buy an existing house in the third quarter of last year.