StatsSA's November building stats continue to point towards an extremely weak picture for the residential building sector. For the three months to November 2009, the square metreage of residential buildings completed declined by -35 percent year-on-year, almost unchanged from the -35.4 percent year-on-year decline for the three months to October.

Massive declines in building plans passed

There is, at best, some early indication that the sector may be moving towards stabilisation, with a diminishing rate of decline in square metreage of building plans passed now apparent. For the three months to November, square metres of building plans passed declined year-on-year by a still-massive -27.4 percent. However, this is an improvement from the -32.3 percent for the three months to October, and more so compared to the -48.7 percent for the three months to September.

Obviously, it remains to be seen as to whether some improvement in building plans will translate into an actual improvement in activity.

Surprisingly, perhaps, we have not seen strong evidence of a shift towards a smaller average size of unit, despite affordability in the new residential building sector being a major issue. There has been a gradual decline in the average size of buildings, from a peak of 140.9 square metres in September 2006 to November 2009?s 122.7 square metres. But this is still considerably larger than the big dip in size after the 1998 interest rate spike, to 63.4 square metres.

Oversupply during boom

This possibly has to do with our perception that the biggest oversupply of residential property was created in the flats and townhouses segment of the market during the boom, and that in 2009 we started to see a noticeable decline in this segment?s percentage of total building.

In other words, the affordability drive may be more pronounced than what the building stats suggest, but a stronger cut-back in building of small-sized flats and townhouses due to oversupplies already existing leads to the average size of unit for the total market not declining as much as one would expected.

FNB Valuations stats according to the year in which a home was built, suggest that there has been a more pronounced decline in average size of building since 2004, as affordability became more of an issue.

However, the smaller-size drive was predominantly in the sectional title market, a segment that gained in significance during the boom, but which has probably declined in importance for the building sector temporarily during the slump, as the building stats also suggest through their showing a decline in importance of flats and townhouses.

Cost pressure

The November 2009 Producer Price Index for Building Materials showed a year-on-year decline for the third consecutive month, to the tune of -2.8 percent. This is probably reflective of both the global commodity price slump as well as the domestic building construction sector slowdown.

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