Glimmer of hope as residential builders eye better days
● 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