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We take a look at the latest construction material price indices as published by Statistics South Africa (Stats SA) and we focus on the annual inflation rate of the cost of doing general alterations to your home over time. And based on the numbers the growth in the cost of making alterations to your home has come down significantly from the levels of growth seen in 2008.
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Cost of making alterations to your home is growing at a slower rate recently
The line chart below shows the annual rate of inflation of alterations in South Africa over time, as well as a smoothed out version of the cost of alterations (to cut out any seasonal variations and fluctuations) in the numbers and to get to the underlying trend in the data.
The above is a clear sign of a industry in decline and one that is struggling. As fewer people look to have alterations done to their home, demand declines, and in a market where there are a lot of suppliers of alteration and renovation services, as demand declines and supply remains the same prices tend to fall as suppliers starts cutting prices in the hopes of luring thinning demand their way.
During South Africa's own little housing boom and bubble in 2008 when the construction industry was on a high thanks to all of government's infrastructure spending plans, cheap credit for housing and strong economic growth the annual rate of inflation for general alterations to homes was in excess of 14% a year. So basically if you wanted to have R100 000 worth of alterations done to your home, if you waited a year before doing them it would set you back R114 000. However when the financial crises hit the USA, fueled and caused by the sub prime mortgages and spread throughout the world, SA's own housing bubble popped, and all those who bought investment properties started selling, pushing down prices as the market was flooded and the excess needed to be removed first.
The financial crises lead to a recession in SA which saw consumers cutting back on their expenses and expensive renovation and alteration plans, and with it came the decline in the inflation rate of alterations. The inflation rate of cost of alterations is now very similar to the South Africa's official consumer inflation rate. And as consumers get wiser and more clued up regarding inflation, prices and fees charged etc, we will continue to see prices charged for services supplied by companies such as construction companies offering alteration and renovation services, to grow at rates similar to inflation rates, as these companies would struggle to justify above inflation price increases. In the same way that landlords cant just apply the 10% rule of increasing rent every year by 10% as consumers are starting to demand inflation related/linked price increases.
Good news for South African consumers, who might have been taken advantage of in the past, before the true power of the information ages, internet etc was unleashed.
So if you are looking to do renovations in a few months, get a quote, and start saving and when you are ready get a new quote, and make sure the annual increase is inline with inflation and the inflation rate of cost of alterations as shown in the graphic above.
The financial crises lead to a recession in SA which saw consumers cutting back on their expenses and expensive renovation and alteration plans, and with it came the decline in the inflation rate of alterations. The inflation rate of cost of alterations is now very similar to the South Africa's official consumer inflation rate. And as consumers get wiser and more clued up regarding inflation, prices and fees charged etc, we will continue to see prices charged for services supplied by companies such as construction companies offering alteration and renovation services, to grow at rates similar to inflation rates, as these companies would struggle to justify above inflation price increases. In the same way that landlords cant just apply the 10% rule of increasing rent every year by 10% as consumers are starting to demand inflation related/linked price increases.
Good news for South African consumers, who might have been taken advantage of in the past, before the true power of the information ages, internet etc was unleashed.
So if you are looking to do renovations in a few months, get a quote, and start saving and when you are ready get a new quote, and make sure the annual increase is inline with inflation and the inflation rate of cost of alterations as shown in the graphic above.