Building industry confidence at 96%

Posted On Monday, 13 December 2004 02:00 Published by eProp Commercial Property News
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Stellenbosch Bureau for Economic Research (BER) says building industry confidence is at levels last seen in the economic upswing of 1978 to 1981

Construction IndustryStellenbosch Bureau for Economic Research (BER) says building industry confidence is at levels last seen in the economic upswing of 1978 to 1981. Fourth quarter 2004 business confidence levels of residential building contractors is at 96% - compared with 87% in the third quarter of 2004, and 48% in the second quarter of 2003. BER senior economist Dr Charles Martin

LINDSAY WILLIAMS: I drove around today buying Christmas presents. I drove through Sandhurst and there are 55 upmarket clusters going on - there were trucks dumping enough sand to cover Noordhoek beach. I went along a road in Kyalami - they are probably tripling the size of the road. Broad based, it really does seem to me - is that the case?

CHARLES MARTIN: That is correct, and that is particularly true of the residential sector. I think that is a function of the current stable, and more important - lower nominal interest rates that we are seeing. I think another factor is that the economy, domestically, has been very robust - and that has given rise to a fairly strong growth in real disposable incomes, so there is more money in the pockets in consumers. They are obviously taking the chance to build at the moment.

LINDSAY WILLIAMS: So it is the residential sector that is the most buoyant from your survey’s point of view?

CHARLES MARTIN: Well, up until recently that was the most buoyant sector. The non-residential side - and here we talking about office buildings, industrial and retail space - is also coming to the party now. In fact, if we look at the business confidence of non-residential building contractors - that has jumped from the third to the fourth quarter 2004 from a level of 75% to 91% - so they, really, are also closing up the gap on the residential side.

LINDSAY WILLIAMS: Talking about space, is there a chance in the future - if this growth continues, and this confidence continues - we might start to get a shortage of office space, and commercial space?

CHARLES MARTIN: Well, the problem is not so much the space. Obviously developers are coming to the party, and are developing now. I think of more concern is whether we will have the necessary inputs - building materials and labour, really, to satisfy that building demand going forward.

LINDSAY WILLIAMS: I was watching a TV program the other day - the labour industry in the UK, for example... the building labour industry is very unfashionable amongst youngsters. They are battling to get people to get in, and learn the skills that, you know, maybe 20 years ago might have been a viable career path. Are we finding that here as well?

CHARLES MARTIN: Well, to a certain extent - but I think our problem here is lack of training. Given the scarcity of work very often in government sectors I think if you really go and train as a plumber - given our long term view of the building industry - you will actually make a lot of money. So that is a very good sort of industry to operate in. Apart from the international perspective, there is a lot of government funding going into infrastructure - schools, hospitals, roads and bridges - so that is an industry that is going to grow in the future of this country.

LINDSAY WILLIAMS: Building materials? You suggested there may be a shortage there? I know that companies like PPC have had a fantastic run. We look at their share price. In practical terms, are we getting to a point where we might run out of a few things - bricks, cement - that sort of stuff?

CHARLES MARTIN: Well, I don’t think cement. The major building material that is a problem - the manufacturers are installing capacity at the moment - bricks are in short supply. You will, eventually, get the stuff but you wait a long time - and there is a cost factor involved for contractors. Therefore, he will price for it - hence the reason why we see that building costs are accelerating at the moment.

LINDSAY WILLIAMS: What about the public sector? The government - massive infrastructure plans! Do you see that continuing? The government is committed to vast sums of spending. Do you think the building industry will continue to benefit from that?

CHARLES MARTIN: Yes, absolutely. That is why we are more positive about the upswing - compared to the 1981 period. Fundamentally, inflation is down at the moment - structurally. Fiscal policy is balanced, and government is under severe pressure, anyway, to supply the infrastructure going forward. Then there are factors like the 2010 Soccer World Cup - which is also kicking in - and if we want to enter the bid for the 2016 Olympics we will have to get the infrastructure in place, otherwise we won’t even be able to put in a proper bid.

LINDSAY WILLIAMS: As demand goes up - as you suggest it is continuing to go up - prices must rise? What about the prices of the sector you have been talking about? Have they risen noticeably?

CHARLES MARTIN: Yes. At the moment building costs are definitely accelerating, and that is a reflection of the shortages. Also, the fact that building contractors have suffered for a long time - and I think they are using the chance, really, to widen their profit margins. You quite rightly remarked there is a lot of building going on, and if you are in the practical business of trying to get a builder now - very difficult to get hold of. They have got enough work to keep them busy.

LINDSAY WILLIAMS: They have, indeed. I will tell you one thing I have noticed - which has been different to previous years - is that you would find a building site around about this time of year pretty inactive. Maybe they would even have knocked off for the Christmas period... I was going along the William Nicol highway in Johannesburg today - and there is a new car dealership going up. There were probably bout 50 to 60 labourers there. Are you finding that builders - because of the demand - are shortening their holiday?

CHARLES MARTIN: I haven’t got specific information on it, but obviously it is harvesting time now - so any builder that is not making use of that opportunity is very stupid. I think I must add to that - any builder that doesn’t make money at the moment must rather go and play marbles, or go to the beach and build sandcastles. It is a time, really, to harvest at the moment.

LINDSAY WILLIAMS: You think this is going to continue? I always get worried when you see 96% of contractors in the residential sector are confident - you don’t think it is going to cool off next year?

CHARLES MARTIN: We will possibly see a moderation in the rate of growth. But again, I want to emphasize that compared to 1981 when inflation - and it sounds silly now - was 17%, we had huge deficits to deal with. Fundamentally, we have macroeconomic stability, and there is all reason to believe that the upswing of the overall economy - which is in its sixty-third month now - will continue well into 2006. Given the fact that building is lagged variable, or demand - that will also continue in the same fashion...

 

Last modified on Monday, 21 October 2013 17:14

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