World Cup to boost infrastructure growth

Posted On Tuesday, 29 September 2009 02:00 Published by eProp Commercial Property News
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Certain elements of infrastructure construction will pick up from the fourth quarter as the 2010 World Cup projects accelerate and near completion.

2010Certain elements of infrastructure construction will pick up from the fourth quarter as the 2010 World Cup projects accelerate and near completion, according to research and credit insurance company Coface South Africa.

"Infrastructure development is mainly due to South Africa's government spending, which accounts for more than 50% of this market," said Wayne Basson, Coface industry analyst.

The expectation is that certain elements of this sector will pick up from the fourth quarter of 2009 as football projects near completion, the group said in its latest analysis of the construction industry, released on Monday.

"The South African government's R787 billion infrastructure spending has had a positive effect on the construction industry.

Due to the huge infrastructure backlog, large construction companies have secured contracts
to sustain them past the demand created by 2010.

"The results can be seen in the financial performance of many of these companies so far this year," Coface said.

It argued that the performance of these companies would benefit the economy over the next 12 months, and the continued demand would aid job creation.

Conversely, the residential property market is in decline, which, according to Coface is the result of many factors.

"Banks have become restrictive in their credit lending, with the percentage bonds now being granted below 100% and with addition restrictions and NCA compliance requirements. Buyers have the added burden of requiring up to 10% deposit to
contend with.

"The drop in interest rates has not assisted low to medium income earners.

"This is because majority of these people are currently servicing debt and are not considering any form of building or construction purchase right now," the research group said.

In addition, property investors remained skittish as the demand for residential property remained low.

Due to the high levels of household debt many homeowners were defaulting, leaving financial institutions with a myriad of repossessed assets which including motor vehicles, Coface said.

"As a result of this slowdown in residential demand, Coface South Africa has witnessed a shakeout in the residential construction industry with only well-run construction companies left. The past 18 months of the credit crunch has resulted in the consolidation in the market as the smaller 'one-bakkie' construction SMEs fall by the wayside," Basson said.

The group underlined the fact that the future of the residential construction industry was dependent on the level of demand for property, which is equally dependent on access to credit.

"If financial institutions are able to, along with the National Credit Act, find ways to safely lend
money, the market will begin to recover.

"That said, Coface South Africa does not believe such a recovery will be possible in the remainder of 2009," it concluded.


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