Building activity in the residential segment of the South African property sector continued to experience tough conditions up to March this year, with volumes in the planning as well as in the construction phases substantially lower compared with the first quarter of 2009.

The expectation is that activity levels will remain depressed for most of the year in comparison with last year.

"Residential building activity in the South African housing market continued to experience a substantial amount of strain on a year-on-year basis up to March 2010," says Jacques du Toit, a sectoral analyst at Absa Retail Bank (Secured Lending).

"Based on trends in residential building activity up to the first quarter of 2010, which reflects demand and supply conditions in respecting of new housing, the sector is forecast to continue to experience tough conditions for most of the year," he says.

Property strategist at FNB Home Loans John Loos concurs.

"Whilst we had previous believed that there were signs of a move towards stabilization in the residential building sector late last year, the first quarter numbers suggest that we are still some way from that point," says Loos.

"Commercial property building activity still appears to be on a deteriorating path, as one would expect given a general rise in commercial and industrial vacancy rates.

After some improvement in the rate of decline in residential building activity, this sector once again turned for the worst in the 1st quarter of 2010," he adds.

"On the residential side, we saw square metres' worth of buildings completed show a year-on-year decline of -42.2%, compared to -28.1% in the previous quarter.

This came as a mild surprise, after some diminishing in the rate of decline in the 4th quarter of 2009, which had previously led us to suspect that the residential segment may have been moving towards stability.

"Square metres' worth of residential building plans passed also showed now further sign of improvement during the 1st quarter, with the year-on-year rate of decline being slightly worse than the previous quarter at -23.8% (compared to -22.5% previous.

"And so, early indications are that 2010 looks set to be another weak year for residential building activity.

"This is largely the result of ongoing oversupplies that languish in many areas as a result of the dramatic slowdown in residential property demand during the recession period of 2008-2009, and although residential demand has increased significantly over the past year (following major interest rate cuts), the oversupplies have yet to be fully mopped up."

According to Du Toit, on a month-on-month basis conditions in the planning phase deteriorated further, while some improvement was noticed on the construction side.

With regard to plans approved for new housing, the real value was down by 10.6% year-on-year (y/y) in the first quarter of 2010 to R3.85 billion from R4.31 billion in the first quarter of 2009.

The real value in respect of residential buildings constructed was 38.8% y/y lower at R3.08 billion in the first three months of 2010 compared with R5.03 billion in the same period last year.

These real values are calculated at constant 2005 prices.

The volume of building plans approved for new housing was significantly lower in all three segments (houses, flats and townhouses) in January-March this year compared with the first quarter of 2009.

The number of plans approved for new housing was 39.1% y/y down to 2,726 units in March (-19.9% y/y at 3,859 units in February).

In the construction phase of new housing, reflecting past trends in the planning phase, the number of units completed in the three segments of the market was substantially lower in the first quarter of the year.

In March the volume of new housing units constructed was 37.5% y/y lower at 3,403 units, but was slightly up on a month-on-month basis from 3,139 units in February.

Source: I-Net Bridge