Trends in building activities
Minor improvement at the lower end of the Western Cape residential building industry is ‘cause for mild encouragement’ only, writes Anna-Marie Smith
TWO pointers in the direction of positive growth are illustrated in First National Bank’s second quarter statistics showing minor growth at the lower end of the building segment of the market, as well as an increase in the square meterage of building plans passed in the same segment.
Clinton Martle, First National Bank FNB Home Loans Regional Sales Manager Western Cape, says: “From a year-on-year rate of decline measuring a horrendous - 47% in the first quarter of the year, the second quarter rate of decline in square meters of residential buildings completed diminished sharply to -9.5%. In addition, square meter-age of building plans passed turned to slightly positive year-on-year growth, in the second quarter, to the tune of 3.1%.”
He says plans passed can be something of an indication of the near term future trend in building activity, and this was the first positive quarterly growth rate in this figure in over two years, a cause for mild encouragement.
Martle says while fireworks in the residential building sector should not be expected any time soon, however — tough economic times as well as large utilities tariffs on housing related services make smaller and more affordable units relatively more appealing to more people.
“Put this together with an apparently better balance between demand and supply in the affordable segment, and this leads us to
Some builders are declining contracts due to unrealistic profit margins
believe that any mild improvement that we may see in building activity in the Western Cape will be caused largely by the smallsized/affordable segment of the market.” he said.
The relatively less well-supplied affordable segment is the main target of new development interest, and building stats recorded significant growth of 33.1% in square meterage for the smaller than 80m² housing category, while the apartments and townhouse category also grew its square meterage completed by 16.8%, he says,
He says by comparison, houses larger than 80m² continued its slump, recording a year-on-year decline of -27.2%.
The construction industry, including building contractors and materials suppliers who are surviving one of the toughest two year periods in the industry, now sitting out the prolonged economic “dip”, are dealing with a range of complex issues not necessarily within their control.
Building contractor Steve Hollesen of S2 Construction, who builds houses across different ends of the market, from R600 000 to millions, says the entrepreneurial spirit of this volatile industry provides the innovation and tenacity to sustain the crisis. He says a 150m² house built in Capricorn near Muizenberg two years ago would have cost R495 000 but has now increased to R615 000.
Another factor is that industry wages are regulated to hold for three years, yet building costs per square meter have increased from approximately R3 000 to R4 000 during this period.
Hollesen says building contractors are forced to lower their margins to remain in a fiercely competitive market despite operating at vastly reduced capacities of 40% as opposed to 100% to 110% during the “good times”.
Some builders are declining contracts due to unrealistic profit margins. Craig Cronje, Sales and Marketing Director at Group Five’s Everite, a supplier of cement building products across the different ends of the market, says one of the complexities of the regulated cement industry is price increases imposed on industry players.
However, Everite endeavours to contain input costs at plant level and has seen a reasonably stable past 12 months, as well as a fair degree of building refurbishment as opposed only new houses being built, Cronje said. He says tough economic conditions are offset by way of cross boarder exports to neighbouring countries experiencing greater economic stability, as well as government’s legislation of the inclusion of ceilings in all low cost houses.
Martle said while the noted improvements come off a very low base, a high degree of financial pressure in the province's household sector should make affordable housing appealing, and a relatively improved performance in building activity in the small-sized segment should be expected.
The construction industry, including building contractors and materials suppliers who are surviving one of the toughest two year periods in the industry, now sitting out the prolonged economic dip, are dealing with a range of complex issues not necessarily within their control.