Construction Costs Outpace Inflation in South Africa
Overview of Recent Data
Between Q1 2025 and Q1 2026, building expenses climbed 4.3 %, while average home prices jumped 6.9 %, according to BetterBond analysis. The gap between what it costs to replace a house and what buyers actually pay has narrowed, but construction remains pricey enough to keep many people looking at existing homes instead of new builds.
Why Costs Are Rising
A big driver is fuel. Diesel prices are creeping up again because of tensions between the US and Iran and because a temporary fuel‑levy cut is likely to be reversed. Roelof van den Berg of Gap Infrastructure Corporation warns that any jump in diesel costs hits every part of a project—from moving materials to running generators on site.
Impact on the Housing Market
Even with higher building costs, the property market shows signs of life. BetterBond’s May Property Brief reports the strongest year‑on‑year rise in house prices since the post‑pandemic bounce in 2020.
- First‑time buyers saw prices go up 10.3 % compared with last year.
- Repeat buyers enjoyed an even bigger gain of 19.9 %.
These figures beat the consumer price index, meaning real estate is gaining value faster than overall inflation.
First‑Time Buyers Lead the Demand
Much of the recovery comes from people buying their first home. Their share of approved loan applications rose from 35.3 % in 2024 to 37.65 % now. The average loan size for these buyers also grew, reaching R1.17 million, a 5.41 % increase. This suggests newcomers can afford better‑quality properties.
Shifts in Lending Behavior
Banks have tightened deposit rules again. In April, the average deposit required for all buyers rose 33 % quarter‑over‑quarter. For first‑time buyers, the typical down payment is now about 38 % of the purchase price—back to levels seen in 2024. While this caution reflects worries about inflation, it could slow down some buyer activity.
Infrastructure Sector at Risk
Public works projects feel the squeeze most. Higher diesel prices push up operational and material costs, tightening already thin budgets. Van den Berg notes that if contractors cannot adapt quickly, some may have to pause work temporarily or shut down permanently, delaying essential services like roads, water, and electricity for whole communities.
How the Industry Can Respond
Gap Infrastructure Corporation advises firms to:
- Tighten internal controls – monitor fuel use and material waste closely.
- Build flexible structures – create processes that can scale up or down when costs swing.
- Diversify energy sources – explore alternatives to diesel where possible.
Taking these steps now can help keep projects on track even when fuel prices spike.
Conclusion
South Africa’s construction costs are rising faster than general inflation, fueled largely by diesel price pressures. Yet the housing market is holding its ground, driven by eager first‑time buyers and stronger loan activity. While builders and infrastructure firms face real challenges, proactive management and flexible planning can help them weather the storm and keep development moving forward.
