The December 2024 residential building data from StatsSA completes the weak picture for this segment of the construction sector. However, while challenges persist, there are indications that planned building activity may have been edging towards positive growth as 2025 approached.
Source: Supplied. John Loos, senior economist at FNB Commercial Property Finance.
The residential building data outlook shows signs of stabilisation amid ongoing weakness, says John Loos, senior economist at FNB Commercial Property Finance
“The latest data from StatsSA for December 2024 reinforces the prevailing weakness in the construction sector. However, despite ongoing challenges, there are emerging signs that planned building activity was beginning to show signs of recovery as 2025 approached. We expect a modest return to growth in building activity this year,” he said.
Loos unpacks this emerging trend further:
The latest StatsSA release showed a robust year-on-year growth rate of 33.13% in the number of residential building plans passed, a significant rebound from the previous month’s decline of -5.27%.
Given the volatility of monthly data, a three-month moving average provides a clearer trend. For the fourth quarter of 2024, the year-on-year rate of change still reflected a moderate decline of -5.99%, following a -4.57% decrease for the three months to November.
Despite this, the recent declines were far less severe than earlier in 2024. The first quarter of 2024 saw a sharp -29.86% drop, suggesting that late 2024 may have marked the beginning of stabilisation in residential planning levels after nearly three years of broad decline.
This prolonged downturn followed the South African Reserve Bank’s (Sarb’s) aggressive interest rate hikes, totalling 4.75 percentage points from late 2021 to May 2023. However, recent rate cuts of 75 basis points since September 2024 have provided a modest boost to residential demand, potentially aiding market stabilisation at a still low level of activity.
Currently, residential building plans passed are significantly lower compared to the period just before the interest rate hikes, with a cumulative decline of -46.7% from the three months to December 2021 to the same period in 2024. The level is also a substantial -73.8% below the multi-decade high reached in the three months to December 2005, which occurred during what we believe was a market “bubble”.
Residential buildings completed
Residential building completions continued to decline sharply, with a -40.96% year-on-year drop in December 2024 and a -34.63% decline for the fourth quarter of 2024.
Plans passed by size category
When breaking down plans by building category:
Dwelling (free standing) houses larger than 80 square metres: Declined by -4.9% year-on-year.Flats and townhouses: Experienced a more significant decline of -13.7%.Dwelling houses smaller than 80 square metres: Showed a mild increase of 9.8%. However, this is the smallest and most volatile category.
Long-term data reveals a shift towards flats and townhouses, reflecting the need for more efficient urban land use as scarcity increases. These housing types generally offer a smaller average stand size per unit.
The share of flats and townhouses in total residential plans passed increased from 11% in 1999 to 47% by 2024. This trend is driven by the growing demand for space-saving housing and a decline in the construction of free-standing homes under 80 square metres, potentially highlighting challenges in South Africa’s affordable housing initiatives.
Cyclical segments as economic indicators
The combined segments of “Flats and townhouses” and “Free-standing homes larger than 80 square metres” are typically more cyclical and reflect broader business cycle trends.
The Sarb includes these segments in its Composite Leading Business Cycle Indicator due to their predictive value. In December, these segments saw a modest year-on-year growth of 7.99% in building plans passed.
However, the three-month view to December still showed a -9.79% decline year-on-year. The reduced magnitude of decline suggests a potential market bottoming out. This trend aligns with the Sarb Composite Leading Indicator, which turned mildly positive with a 2.4% year-on-year increase in November 2024, suggesting gradually improving economic conditions in early 2025.
Outlook
While the December 2024 data points to ongoing weakness in the residential building sector, there are signs that the market may have bottomed out, potentially transitioning to positive growth in 2025.
FNB’s economic growth forecast of 1.9% for 2025 would improve on an expected sub-1% rate for 2024. We anticipate two additional 25 basis point interest rate cuts shortly, with the Sarb’s overall rate-cutting strategy likely offering mild support to residential demand. We expect residential building plans passed to achieve moderate growth of 5-10% for 2025, with building completions following suit, albeit with a slight delay, after a -23% drop in 2024.
Challenges to recovery
A key constraint to recovery is the rising cost of construction, which impacts housing affordability. While the average value of plans passed showed a minimal inflation rate of 0.7% in the final quarter of 2024, the inflation rate for completed units accelerated to a notable 8.19% year-on-year in the same period.
In summary, while we foresee mild growth in building activity in 2025, supported by an improved economy and lower interest rates, the environment remains challenging. Cost management will be critical to ensure the affordability and sustainability of new residential developments.
