Friday, 20 May 2011 02:00

Tips for the rental market

The current outlook on the rental property market has been stable, however, this does not mean that there are no concerns for property owners and managers alike

Thursday, 30 September 2010 02:00

Invest, don’t speculate

Speculators have been knocked out of the residential market, according to estate agents. The proportion of properties sold to buy-to-let investors has fallen from over 25% at the peak of the boom in 2006 to 7% today

Wednesday, 21 July 2010 02:00

Slow growth restrains buy-to-let investors

Buy-to-let purchases fell to a new low of 7% of total property buying in the second quarter of this year, down from the previous quarter's 9%.

Monday, 26 May 2008 02:00

Building industry heads for slowdown

ACTIVITY in the building industry is expected to slow significantly this year as residential and nonresidential property developers feel the strain of higher interest rates, inflation and electricity problems.

Construction IndustryInterest rates have gone up 4,5 percentage points since June 2006, pushing household debt costs to 11% of disposable income. This curbed consumer spending and halted a seven year rally in property prices.

With more interest rate hikes expected this year as the Reserve Bank battles to rein in inflation, analysts say the building industry is expected to weaken even further.

The sector has been experiencing a downturn since late last year, but the slowdown is said to be quite significant in the residential property development market.

Statistics SA figures released last week show building plans passed for the private sector in the first quarter were 1,7% down on the previous first quarter’s.

At the same time, residential building plans passed (half the total) fell 8,9% in a trend stemming from higher interest rates and lower property prices.

Wayne Basson, an industry analyst at international credit insurer Coface, said building plans passed for new houses levelled towards the end of last year, and were declining. This suggested a turn for the worse in building activity this year.

About 5%-8% fewer houses were expected to be built this year as developers felt the pinch of higher interest rates and building materials costs. The cost of materials such as cement and bricks rose as manufacturers tried to keep up with rising producer price inflation, which stood at 11,8% in March.

Cement sales, a key building indicator, peaked, and the growth rate fell sharply.

“It is anticipated that the number of residential buildings completed this year will decline 5%-8%. Even nonresidential building plans passed have declined, despite this sector expecting to show an upturn,” Basson said.

FNB industry analyst John Loos believes that the completions decline will be even higher than that.

“I believe that we may have a decline in completions in excess of 20% for 2008 in SA as a whole, which implies a significant further deterioration in the level of residential building activity,” said Loos.

He said electricity supply problems were also restricting the pace of new developments in some cases.

“On top of all of this, the global economic slowdown adds to prospects for slower economic growth, and thus job creation and residential demand in 2008,” he said.

Growth in the lower end of the housing market was, however, expected to remain robust as the government continued to spend substantially in a bid to reduce the housing backlog among the poor.

 

Tuesday, 25 September 2007 02:00

Building cost inflation up

Commercial building cost inflation rose to 29% in the second quarter of 2007 from 16% during the first quarter of the year, the FNB Commercial Property Finance Property Building Cost Index showed on Tuesday.

Construction IndustryThe index reflects the average building cost per square metre, as priced by building contractors when winning tenders. As such, it reflects the combination of contractors' input costs, their own pricing power which varies over time due to market conditions, and the standard of the property developments in question.

While the retail and office property building costs indices have been showing increases, the industrial property sector has seen some tapering off in its inflation rate, the index showed.

The retail property sub-index showed a year-on-year building cost inflation of 39.5% for the second quarter, followed by office space with 26.2% and industrial space inflation of 13.9%.

"One should not read too much into the tapering in building cost inflation in the industrial property sector. Its index showed strong growth in 2006, running a bit counter-cyclically to the other two sub-indices, and was probably due for a breather coming off a high base," said John Loos, FNB property strategist.

He noted that the renewed surge in the index broadly tracked the producer price index for building materials, which experienced a lull in 2006 before seeing its inflation rate climbing as 2007 approached.

"The rise suggests a significant input cost push effect, especially as it comes at a time when there exist a feeling that especially office rentals still need to adjust further upwards in order to make many more projects viable, and in so doing alleviate a vacancy rate," said Loos.

 

 

Commercial building cost inflation slowed to 16% year-on-year by the first quarter of the year, from a peak of 37% in the third quarter of 2005, the FNB Commercial Property Finance Residential Building Cost Index showed on Thursday.

Construction IndustryThe index reflects the average building cost per square metre, as priced by building contractors when winning tenders.

As such, it reflects the combination of contractors' input costs, their own pricing power which varies over time due to market conditions, and the standard of the property developments in question.

The mild decline in building cost inflation in the commercial property sector should perhaps not be too surprising. Interest rates have been rising, and according to the Investment Property Databank (IPD), 2006 saw a mild decline in total commercial property returns from a peak of 30.1% in 2005 to 26.7%, said John Loos, FNB's property strategist.

"This may well have exerted some mild downward pressure on the growth in pricing power of contractors," he said.

Moving into the sub-sectors of commercial property, the relative building cost inflation rates of the industrial, office and retail property sectors at present appear somewhat related to the relative strength of these property sub-sectors, he said.

Industrial property, the place where all the action is, showed first quarter year-on-year building cost inflation of 40.8%.

This sector has shown a steady surge in building completions in recent times, has very low vacancy rates and according to the IPD showed the highest total return of the sub-sectors in 2006 to the tune of 31.1%.

The sector overtook the retail property sector as the star performer back in 2005, Loos said.

Retail building cost inflation has tapered off for some time, but still showed a respectable 17% year-on-year inflation rate in the first quarter.

"This sub-sector is believed to be leading the commercial property cycle, and although total returns for retail property were estimated at a still-healthy 27.4%, it is believed that there will be further decline this year and next on the back of a slowing consumer demand growth rate," according to Loos.

He noted that office space building cost inflation slowed to a mere 1.1% year-on-year in the first quarter.

"The office sector is the laggard in the commercial property cycle, and continues to surprise on the downside. Vacancy rates have been declining for some years, and on a national basis (The South African Property Owners Association) estimates of A and B-grade office vacancies are just above 5%," he said.

However, returns are the lowest of the 3 major sub-sectors at 24.5% in 2006, and building activity has not yet surged, as one would anticipate it to do in the near future, Loos said.

 

 

 

 

Although house price inflation in South Africa declined last year, it was still significantly higher than other major residential property indices suggested

Thursday, 19 April 2007 02:00

Slowdown dents building sector's confidence

The building confidence index has dropped by two points amid a general slowdown in construction activity, says First National Bank (FNB) chief economist Cees Bruggemans.

Construction IndustryThe bank's index declined marginally to 87 points this year from 89 points last year.

Bruggemans said the decline in business confidence was due to a moderation in all building industry categories, except quantity surveyors, where confidence increased by six index points.

Residential property development was taking a hard knock while commercial property was experiencing a boom.

However, the Bureau for Economic Research's latest survey found that business confidence of nonresidential building contractors had increased marginally from 93 index points last year to 94 points this year.

John Loos, property strategist with FNB Commercial Property Finance, said the high level of retail building activity was still taking place in "lagged" response to SA's consumer boom. Low vacancy rates were driving growth in industrial and office space property categories.

According to the Investment Property Databank, overall commercial property returns were still strong at 27,4%, which created the right climate for strong investment and growth.

While the overall profitability of building contractors had improved, shortages in skilled labour and building materials were affecting output.

Bruggemans said overall business confidence in the building industry remained comparatively high, with major industry players satisfied with conditions.

He said business confidence of residential building contractors was down from 89 to 84 points, because conditions in this sector had become less favourable compared with 2005 when growth was strong.

On the supply side, developers were increasingly encountering problems in getting municipal approval, and connection to water supply and sewage disposal, as a result of strained municipal infrastructure.

 

At present, the six Property Unit Trusts (PUTs) listed on the JSE Securities Exchange are invested in various combinations of commercial, industrial and retail property but, as yet, they have no exposure to residential property.

Tuesday, 23 January 2007 02:00

Inner city revival outlook promising

The driving fundamentals of inner city rejuvenation appear better now than in the previous decade or two

Page 10 of 11

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