The proposed transportation intervention is going to change the look and the feel of the inner city and improve our mobility but unless it also does a whole lot more, it will merely be meeting a knee jerk reaction fulfilling a passing need, the short-term transportation of 2010 visitors

Building material costs have risen sharply again in the second quarter of 2007 — industry experts said demand for commercial space was outstripping supply — and developers are having difficulty bringing new projects on stream.

Construction IndustryBuilding costs in the second quarter of 2007 rose by 29%. The index reflects the average building cost per square metre priced by building contractors.

It contains a combination of input costs and pricing which varies due to market conditions.

Retail property showed an increase in building costs of 39.5% in the second quarter — the latest available figures; office space by 26.2% and industrial space 13.9%.

Large construction companies are operating at full capacity with the World Cup stadiums, the Gautrain and the Coega development zone taking up all their activities. Some impact from higher interest rates is also filtering through and a shortage of materials is likely to continue for some years.

While the cost of materials is rising — cement is now being imported — contractors and service providers are increasing their rates at well above inflation levels and there is likely to be renewed pressure on building costs.

“With costs escalating at present rates, rentals for existing properties will be rising as they come up for renewal, said Craig Hallowes, the Association of Property Unit Trusts spokesperson. “We can’t bring a new office block on line in Sandton for under R120/m². Although I don’t think that we are yet at the point where rentals will be running at replacement cost, if the rent is currently R70/m² or R80/m², then I think that you can expect a 20% rise when renegotiation takes place. ”

In the past it would take about 12 months to construct an office block when property was available and rezoning took place quickly, but municipal councils have tightened up on rezoning applications.

In the case of retail developments, a larger number of sub-contractors are being used for items such as glass and aluminium and these specialists are in short supply.

In a twist to the rising building material costs, the Competition Commission has indicated that it will look at the building and construction sectors to assess if there are any anti-competitive practices — as well as bid-rigging, where rival companies decide beforehand which of them will win a tender.

 

Thursday, 27 September 2007 02:00

Gautrain strikers ordered back to work

An urgent court interdict ordering workers on the Gautrain rapid rail link back to work was granted on Wednesday, Bombela Civils Joint Venture (CJV) said. 

Construction Industry"Bombela CJV was granted an urgent interdict this morning declaring the Gautrain workers strike action to be unprotected; and ordering workers on strike to cease such unprotected strike action and return to work," the concessionaire said in a statement.

Bombela CJV said it had issued a number of ultimatums to workers to cease the unprotected strike action and return to work or face dismissal.

"Should the striking workers fail to heed the court interdict and the ultimatums issued by Bombela CJV, they are unlikely to enjoy any protection from the courts if they are dismissed."

Construction workers employed on the Gautrain Project downed tools at all major sites on Tuesday demanding an R8 per hour increase across the board.

This amounted to a 73 percent increase in the minimum rate of pay.

Bombela CVJ said the strike challenged and ignored various National Industry Level agreements on which the workers' terms and conditions of employment were based.

"These agreements have been negotiated and agreed upon at various forums between organised labour and industry representatives and gazetted by the Minister of Labour," the statement said.

The agreements were binding and applicable until 2009 for the civil industry and 2010 for the MEI (Mechanical, Electrical and Instrumentation) industry.

"Bombela CJV is not willing to undermine existing industry bargaining agreements and are therefore not willing to entertain any attempts by Labour to renege on existing agreement[s] or to negotiate the terms of any such agreements," it said.

All Gautrain construction workers received an across the board increase of 8 percent as from September 1, 2007. The company said this was in line with the increase negotiated on a national level.
 
Bombela CJV said labour representatives and company officials were making every effort to ensure workers were aware of the possible consequences of their continued strike.

The consortium was unable to say how many strikers had embarked on industrial action on Tuesday and were continuing to do so on Wednesday afternoon.

 

 

Tuesday, 04 September 2007 02:00

What has happened to building costs?

The FNB CPF Commercial Property Building Cost Index, constructed by Industry insight, has seen slowing growth over the past 18 months, but this slowdown is expected to be a temporary reprieve for the construction industry.

Construction IndustryGood old scarcity is accounting for much of the pricing pressure which developers are encountering. Demand for commercial space is outstripping supply and developers are hard pressed to bring new projects on stream.

 “What we have noticed,” states Neno Haasbroek, CEO of Sycom Property Fund, “is that there has been some improvement in the pricing on smaller jobs – those in the R20m region – but for the larger projects – the R500m or R1bn developments – it is hard to find competitive pricing.” The large construction companies have their hands full with the infrastructure projects under way in South Africa and this is likely to continue over the coming years.

Some impact from the higher interest rates is filtering through, but the underlying trend of too little supply to satisfy the growing demand means that costs are expected to see building inflation turning up again.

Although the cost of materials is rising – cement, for example, is currently being imported –contractors and service providers are raising their rates at well above inflation levels. With significant expenditure on infrastructure (such as the World Cup Stadiums, Gautrain and the Coega industrial development zone) competing with commercial developers for resources, there is likely to be renewed pressure on building costs in the years ahead.

Pity the developer outside the main metropolitan areas. If there is a large project, which cannot be handled by local contractors, they will be pushed to find anyone to deal with the development. “Even if they can get a contractor,” notes Haasbroek, “the quotes are likely to be rather uncompetitive.”

For an investor in PUTs, this represents encouraging news. “With costs escalating at present rates,” says Craig Hallowes, spokesperson for the Association of Property Unit Trusts (APUT), “rentals for existing properties will be rising as they come up for renewal.”

Haasbroek gives an example: “We can’t bring a new office block on line in Sandton for under R120/m2 at present. Although I don’t think that we are yet at the point where rentals will be running at replacement cost, if the rent is currently R70/m2 or R80/m2, then I think that you can expect a 20% rise when renegotiation takes place. This is more of an issue than it has ever been before.”

In the past, the lead time to bring an office block on stream was about 12 months, while land was readily available and rezoning took place rapidly. This meant that supply could respond to increases in demand relatively rapidly. Now, however, councils have tightened up markedly on rezoning. Add to that building cost inflation and it is easy to see that supply is no longer as flexible as it was historically.

In the case of retail developments, a higher number of subcontractors are used for specialist items such as glass and aluminium. This is placing additional strain on retail developments as the specialists are notably scarce at the moment.

 

Friday, 13 July 2007 02:00

Enough to go round

The new National Credit Act may be having a dampening effect on the rampant demand for cement in the country, according to PPC CEO John Gomersall.

john gomersall"Demand from residential developers is slowing, the banks' conditions are tighter they're not giving 100% bonds anymore," he says, adding that PPC anticipated last year that this could precipitate a slowdown in cement demand.

This, he says, has reduced to some extent the necessity for PPC to import cement to keep its customers supplied.

Gomersall is visibly annoyed by suggestions that the country is experiencing cement shortages and claims that those who voice opinions on looming cement shortages are speaking from ignorance.

He says large projects such as the Gautrain and Eskom power stations will not use as much cement as everyone believes, and that the quantity needed will be spread over a number of years, while cement production will be growing incrementally.

"I still think cement demand will grow at a compound 6%/year until at least 2014, but I am not sure there will be an equivalent 6% growth in skills over that same period," says Gomersall.

"I'm talking about the managerial and engineering skills needed to design, tender, contract and manage projects."

Asked about an investigation into building material prices alluded to by President Thabo Mbeki in a TV interview last week, Gomersall says he has not heard of any such investigation.

He says cement is a cyclical commodity, and it's important in the up-cycle that those who take the risk and invest large sums of money in new capital equipment should be rewarded.

He says the reason PPC's accounts look so good is that the group's assets are depreciated to a value of about R2 billion on the balance sheet but the insurance value of these assets is closer to R16 billion.

In the six months to March the group reflected an operating margin of 38% on revenue of R2,6 billion, one percentage point lower than the previous year.

"The retailers say they would love margins that look like that, but they can't have them because they haven't made the capital investments," he says.

Cement demand grew 12% last year, outstripping the 8% projection and exceeding forecasts for a third year in a row.

But the feeling at PPC is that it is unlikely to be as high this year. Chief operating officer Orrie Fenn says demand in Cape Town has dropped steeply.

The group hopes to have its R4bn empowerment transaction completed by September, "broad-based with staff participation", says Gomersall.

A 15% equity stake will be transferred.

Earlier this month, Barloworld said that for every one share held in Barloworld, shareholders would get the equivalent of 1,8555 PPC shares in the unbundling of PPC.

On Monday the PPC shares also started trading after a 10-for-one split, part of the restructuring exercise and meant to encourage liquidity.

Gomersall says he does not expect the split to create much change in the two share registers - though there there may be some shorting of the shares.

PPC closed up 90c at R52 after its first day after the unbundling.

 

The government is considering reducing import duties on products needed for its infrastructure development programme, ostensibly to reduce cost pressures as the R400bn programme gathers pace

Tuesday, 13 March 2007 02:00

Esor has R500m in state projects

Civil engineering contractor Esor has scored more than R500m from government's increased spending on infrastructure for the 2010 Soccer World Cup.

Construction IndustryCEO Bernie Krone said new contracts, including the Gautrain project and the upgrading of the OR Tambo Airport, had swelled the company's order book by R580m, putting Esor firmly on track to achieve targeted growth for the new financial year starting this month.

"We intend leveraging our new directors' network and industry knowledge to drive growth and position the group as a favourite contender for infrastructure contracts," Krone said.

The group has to date tendered for Gautrain contracts to the value of R365m, of which R80m has been secured in two piling projects.

"We are still awaiting a decision on the remaining tenders and are confident of our prospects in this regard," he said.

Other new contracts include R80m worth of contracts for the Airports Company of SA, in line with its R5,2bn intended outlay between 2005 and 2009. Esor has already completed the upgrades at the OR Tambo International Airport and is now extending the Cape Town International Airport.

"Following Esor's completion of the Ushaka Pier marine project, the group is now aligned with the preferred bidder for the Ushaka airport in Durban," said Krone.

 

First it was Rosebank, then Braamfontein, and now road diversions are to be introduced in Sandton from tomorrow to enable the Gautrain construction programme to go ahead.

Wednesday, 14 February 2007 02:00

Arup appointed watchdog to Gautrain

Transport civil engineering com-pany Arup SA has been awarded a R150m contract to monitor work on the Gautrain project.

Monday, 11 December 2006 02:00

Just don't drop those bricks

Large projects are driving up share prices. But will they all be completed? The construction industry has spawned more listings this year than any other sector

Page 8 of 11

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