Res­i­den­tial sec­tor hit by slack de­mand

In­put costs off­set by slack de­mand

Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN gre­tas@fin­

BUILD­ING COST IN­FLA­TION – as mea­sured by First Na­tional Bank’s com­mer­cial prop­erty fi­nance build­ing cost in­dex – fell in the sec­ond quar­ter de­spite ev­i­dence of ris­ing in­put costs, re­flect­ing a very weak res­i­den­tial build­ing mar­ket. The in­dex re­flects the av­er­age build­ing cost per square me­tre as charged by build­ing con­trac­tors when win­ning ten­ders in the for­mal res­i­den­tial prop­erty sec­tor. It ex­cludes af­ford­able and so-called “RDP” hous­ing.

FNB prop­erty strate­gist John Loos says build­ing cost in­fla­tion mea­sured 6,3% (year-onyear) in sec­ond quar­ter 2008, down from 8,2% in the first quar­ter. The in­fla­tion rate is a far cry from the 38,8% recorded at the pre­vi­ous peak in third quar­ter 2006 and is re­flec­tive of very weak res­i­den­tial de­mand and low con­trac­tor pric­ing power. “A mild up-tick in the in­fla­tion rate in the first quar­ter raised the sus­pi­cion that ris­ing in­put cost in­fla­tion would start hav­ing an im­pact. How­ever, the sec­ond quar­ter de­cline sug­gests that very weak res­i­den­tial de­mand may be off­set­ting this,” Loos says.

Coun­ter­ing steady in­creases in in­put costs is de­clin­ing build­ing ac­tiv­ity in the res­i­den­tial mar­ket.

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