Glim­mer of hope as res­i­den­tial builders eye bet­ter days

Sunday Times - - Business Property - By PERICLES ANETOS ane­[email protected]­day­

● The res­i­den­tial prop­erty sec­tor is see­ing ten­ta­tive growth, but it is still a long way off from a boom.

The pos­i­tive po­lit­i­cal and eco­nomic de­vel­op­ments of the first few months of the year en­cour­aged South Africans to take cau­tious steps to­wards build­ing or ren­o­vat­ing homes.

Ac­cord­ing to Absa’s res­i­den­tial build­ing sta­tis­tics re­port, the first two months of 2018 brought an im­prove­ment in build­ing ac­tiv­ity for new pri­vate-sec­tor-fi­nanced hous­ing com­pared with a year ago. Based on data from Stats SA, the Absa re­port says the num­ber of build­ing plans ap­proved for new hous­ing was up by a sub­stan­tial 37% year on year in Jan­uary, while in Fe­bru­ary there was growth of 38.2%.

In Jan­uary the num­ber of new hous­ing units re­ported as be­ing com­pleted in­creased by 22.9% com­pared with last year. In Fe­bru­ary, though, there was only mar­ginal growth, of 1.3%.

Pro­fes­sor Dave Root, head of the school of Con­struc­tion Eco­nom­ics and Man­age­ment at the Univer­sity of the Wit­wa­ter­srand, said the con­struc­tion in­dus­try was de­pen­dent on sen­ti­ment. Im­proved eco­nomic growth could lead to im­proved sen­ti­ment and that could lead to an uptick in the con­struc­tion sec­tor.

This, he said, had not hap­pened yet.

Root said that while the num­ber of build­ing plans ap­proved in­di­cated that peo­ple hoped to build, this did not al­ways trans­late into con­struc­tion work.

“It doesn't nec­es­sar­ily mean that there is go­ing to au­to­mat­i­cally fol­low from that a sig­nif­i­cant amount of work. That is still de­pen­dent on what is hap­pen­ing with in­ter­est rates [and] con­fi­dence in the mar­ket.”

Over­all con­sumer con­fi­dence has im­proved in the past few months. The FNB con­sumer con­fi­dence in­dex, com­piled by the Bureau for Eco­nomic Re­search, shot up to +26 in the first quar­ter from -8 in the last quar­ter of 2017.

Jac­ques du Toit, a se­nior prop­erty econ­o­mist at Absa Home Loans, noted, how­ever, that the strong growth in build­ing plans was com­ing off a very low base in 2017, when the sec­tor ex­pe­ri­enced sharp drops.

Since 2010, build­ing vol­umes have re­mained flat. “There has been build­ing ac­tiv­ity but not to the ex­tent that we saw in pre­vi­ous years,” said Du Toit.

Over the past decade con­sumers have come un­der sig­nif­i­cant pres­sure as a re­sult of the slug­gish econ­omy, tax in­creases, in­fla­tion and high un­em­ploy­ment — and those pres­sures are still be­ing felt.

Du Toit said while im­proved con­sumer con­fi­dence, the sta­ble po­lit­i­cal en­vi­ron­ment and the re­cent in­ter­est rate cut by the Re­serve Bank were all pos­i­tives, house­holds were still un­der pres­sure due to the tax hikes an­nounced in Fe­bru­ary and in­creases in VAT, the fuel levy and the petrol price.

“We don’t see ma­jor im­prove­ment. We feel [the sec­tor] will re­main un­der pres­sure de­spite the huge jump in con­sumer con­fi­dence,” Du Toit said.

But some are see­ing an im­prove­ment. Bal­win Prop­er­ties, a res­i­den­tial prop­erty build­ing com­pany, has seen a con­sid­er­able uptick in de­mand. Group CEO Stephen Brookes said that last month was the group’s best April in four years.

Brookes said he ex­pected the uptick to con­tinue, say­ing there was “mas­sive” de­mand for one- and two-bed­room flats.

Rob Wes­selo, CEO of Tran­scend, a res­i­den­tial prop­erty fund, said there was “a lit­tle bit more op­ti­mism and [pos­i­tive] sen­ti­ment” in the mar­ket, with the group see­ing more in­quiries for both ren­tals and sales.

Wes­selo said there was still “a lot of hard­ship in the sys­tem”, which he said would take some time to work through un­til pres­sure on con­sumers eased up.

He said there had been an uptick in the group’s “af­ford­able space” this year.

As for the con­struc­tion ma­te­rial sec­tor, Cash­build saw a 12% in­crease in rev­enue, tak­ing it to R9.7-bil­lion for the year ended June 30 2017.

Mass­mart, through its Builders Ware­house and Builders Ex­press, has seen muted de­mand from home ren­o­va­tors with sales of R13-bil­lion last year, up from R12.7-bil­lion in 2016, ac­cord­ing to the re­sults for the year to end-De­cem­ber 2017.

Sup­pli­ers to the sec­tor are pre­par­ing for an uptick in de­mand.

Brick man­u­fac­turer Coro­brik is in­vest­ing R1.3-bil­lion over the next five years in two new fac­to­ries and up­grad­ing ex­ist­ing plants. The group has al­ready spent R130-mil­lion on fac­tory up­grades.

Con­fi­dence in the con­struc­tion mar­ket and the ex­pec­ta­tion of greater de­mand are un­der­pin­ning the in­vest­ment for the 115year-old brick­maker.

“If you look at our pop­u­la­tion . . . peo­ple need houses to live in and peo­ple need build­ings to go to work in, and that is never go­ing to change . . . our feel­ing is that the South African mar­ket can eas­ily sus­tain us,” said Coro­brik CEO Dirk Meyer.

The South African con­struc­tion sec­tor has had a dif­fi­cult cou­ple of years, send­ing ma­jor play­ers in the sec­tor fur­ther afield in search of op­por­tu­ni­ties.

Dur­ing the pe­riod the sec­tor also suf­fered rep­u­ta­tional dam­age as a re­sult of the ad­mis­sion of wide­spread bid-rig­ging.

But Meyer re­mained op­ti­mistic about the prospects for the sec­tor and Coro­brik’s busi­ness.

The group plans to build a new clay brick fac­tory in Drie­fontein in Gaut­eng, with a price tag of R800-mil­lion.

The fac­tory, which is ex­pected to be com­pleted by 2020, will have an an­nual ca­pac­ity of 100 mil­lion bricks.

The group is also plan­ning to con­struct a con­crete slab fac­tory in KwaZulu-Na­tal, which Meyer said would be nec­es­sary to meet de­mand, but that plan still needs board ap­proval.

Spar Group’s build­ing di­vi­sion Build It said it had seen an in­crease in busi­ness in the first quar­ter com­pared to last year.

Italtile CEO Jan Pot­gi­eter said that in the first few months of the year Italtile, which caters to up­per-in­come con­sumers, and TopT, which caters to lower-in­come con­sumers, had gained mar­ket share, fol­low­ing a trend that has pre­vailed for the past year.

Pot­gi­eter said CTM’s mid­dle-in­come tar­get mar­ket con­tin­ued to ex­pe­ri­ence con­strained dis­pos­able in­come.

“[But] as con­sumer sen­ti­ment turns pos­i­tive with the change in gov­ern­ment lead­er­ship, the strength­en­ing of the cur­rency and sta­bil­i­sa­tion of in­ter­est rates, we ex­pect home­own­ers across the in­come spec­trum to in­crease in­vest­ment in their prop­er­ties over the longer term,” he said.

There’s a lit­tle bit more op­ti­mism in the mar­ket Rob Wes­selo CEO of Tran­scend

Last month was the group’s best April in four years Stephen Brookes Bal­win Prop­er­ties CEO

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