The Additions & Alterations Market (The Bugle)

Last week we looked at residential building activity and this week we will focus on the additions and alterations market for residential properties. When times become financially tough, as experienced from 2008 onwards, the behaviour of property owner’s changes in terms of how much money they spend on maintaining their homes. As every property owner knows and understands,  continual maintenance and care is required for a property. If this is neglected the property soon becomes run down. It is interesting to note that the size of the residential additions and alterations market as measured by the square metres of projects completed was 1,47m in 2012, which was 16.8% down on the 2011 figure of 1,76m, which in turn was down by 2.7% on the 2010 figure of 1,81m. The 2010 figure was already a large reduction of 21.6% on the prior year. These figures clearly indicate that consistently less has been spent on additions and alterations over the past four years. If we look at building plans passed for additions and alterations over the same period, we see that in 2012 a total of 3,12m square metres was passed, in 2011 we had 3,16m square metres passed and in 2010,  3,44m square metres was passed. You would immediately note the large difference between plans being approved and actual projects completed. For the last three years this gap between plans approved but actual building completed, measured in square metres, amounted to 1,63m for 2010 (or 47,4% of actual approved plans), 1,40m for 2011 (or 44,2%) and 1,66m for 2012 (or 53,1%). This indicates that approximately half of all approved plans are not actually built.  One explanation is that once the cost of the addition or alteration is calculated, it is typically higher than expected and the project is put on hold.

Local authorities would be interested in this statistic as they typically spend a lot of time approving plans of projects that will never see the light of day. Building service providers, such as contractors or architects, who can provide their clients with detailed cost estimates prior to doing any design work, should be well received in the market place and should eliminate wasted costs associated with projects that do not go ahead. It makes perfect sense therefore for an architect to charge approximately 75% of the overall design fee prior to a spade going into the ground. The published report by FNB on the renovations market used a survey to measure the market in terms of five broad categories of home maintenance. The results from the January 2013 survey indicate that 3% of home owners fall into the category “letting their homes get run down”, 10% only “attending to basic maintenance”, 38% “fully maintaining their homes” , 45% “maintaining fully and making some improvements” and only 3% making “value adding upgrades”. The positive news is that there has been a big decline in the overall percentage of home owners in the bottom two categories, letting their homes get run down and attending to basic maintenance only, from 38% in November 2008 to 13% by the 1^st quarter of 2013. The majority of homeowners (73%) are now in the “full maintenance” and “full maintenance with some improvements” categories. We still however have a way to go before any serious level of value adding improvements are to be undertaken.

(Author: Andreas Wassenaar, published in The Bugle, 17 Feb 2013)