Absa research released this week shows the price gap between newly built houses and existing houses is narrowing, and could change the buying patterns of potential home owners.

Economist Jacques du Toit says the price of erecting a new house was 12.8% higher than buying an existing house in the fourth quarter of last year.

While this may seem high, it is the lowest differential since the 13.1% recorded in the fourth quarter of 1989 and far lower than the record high of 31.4% reached in the first quarter in 2003.

Gerhard Kotz, chief executive of estate agency Era SA, says : Such declines in the differential generally occur when consumers, resisting high building costs, decide to buy pre-owned rather than newly built homes and cause prices in the pre-owned sector to rise as demand exceeds supply.

The overall plateau of prices needs to move upwards on a broad, steady basis ... and it would make sense for material suppliers and contractors not to kill the golden goose.

Du Toit expects building costs to taper off a bit this year. However, he says there are a number of factors that could support further price increases for newly built houses, particularly a shortage of bricks and timber.

In addition, developers are having difficulty finding skilled labour and they will pass the additional cost of this to the consumer, he says.

At the peak of the property boom in the early 1980s, the price differential between old and new homes dropped to almost zero.
 
Business Times

Publisher: Business Times
Source: Inet Bridge