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

Business Day - Home Front - - NEWS -

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.

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