While buyers are slowly but surely returning to the residential property market, South Africans continue to shy away from spending money on value-add upgrades to existing homes.
FNB’s latest residential property outlook shows that in second quarter 2010 only 8% of all homeowners were believed to be upgrading and renovating their homes. That is in sharp contrast to more than 40% of all homeowners making additions and alterations to their homes when FNB first started its residential property survey in early 2004.
FNB property strategist John Loos says the low level of fixed investment activity in the existing home market is a reflection of the extent to which many households have been forced to reign in spending.
Restricted access to mortgage credit has no doubt also placed a dampener on value-add building activity, says Loos. In addition, South Africans may be loath to invest extra cash in renovation projects given the current weak house price growth outlook.
Loos says in the boom years it was easy to recoup money reinvested in residential property through rapidly rising house prices. But the significant slowdown in house price growth since late 2008 means it has become far more difficult to recoup renovation expenses. There may therefore be a view among many homeowners that other investment avenues may yield better returns.
Latest figures from Stats SA confirm that renovation spend has taken a dive. Building plans completed for additions and alterations to existing houses dropped by a hefty 26% from January to May 2010 year-on-year.
Less money spent on renovations means less work for building contractors who are already feeling the pinch from a massive slide in new home building activity. According to Stats SA the value of new residential buildings completed from January to May 2010 contracted by 24,5% year-on-year.
The category for flats and townhouses has been particularly hard hit, with the number of new sectional title units completed from January to May 2010 down a massive 54% year-on-year.
Jacques du Toit, property analyst at Absa Home Loans, says although there has been tentative signs of life in the home building market over the past two months the sector continues to face tough trading conditions in the near term. - Joan Muller
Readers' Comments Have a comment about this article? Email us now.
The article is not entirely true, being in the retail industry myself I can make the following comments.
1) People are renovating now more than before but they are doing it cash2) Much more money is spend in the cash industry than in the credit industry compared to any previous year to date figures
3) As long as the banks don’t do something drastic about their lending rate to good customers this will continue, we have customers that qualified for prime – 2% before, but now the banks want to charge the good customer Prime +, those customers now wait longer but build cash. This customers are willing to return to the banks only if they qualify for the same lending criteria as before.
4) Builders also can’t get credit at reasonable rates and are forced to only accept cash jobs for the same reason.
In conclusion the article is very misleading because it takes the information supplied by banks, banks are regarded as the enemy in the industry currently.
Remember also that not all renovation has to be approved as well, and some builders built although illegal build without proper approved plans. – Morne NellI tend to disagree with this article. It should read, "Homeowners looking for more affordable ways to renovate and improve their homes".
Both www.Home-Dzine.co.za and www.DIY-Divas.co.za are inundated with enquiries re ways to improve. The difficulty in obtaining finance means that more homeowners are doing improvements as and when they can afford to do them. - Janice Anderssen
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