Tuesday, April 21, 2009

Building Economic Trends 1st Quarter 2009

The reduction in fuel prices and interest rates came somewhat late in the quarter to have any material effect on the broad slowdown in building activity during the First Quarter of 2009.

The business confidence index ("BCI") of residential contractors slipped 8 index points to 26. Trading conditions were tough, but a marginal improvement is expected in the 2nd quarter due to lowering of interest rates and fuel prices. Only 3 provinces recorded an increase in building plans passed, viz. Limpopo, the Western Cape and KZN.

The BCI of non-residential contractors also dropped 8 points to 51 in the 1st quarter of 2009. Tendering competition increased while employment decreased. No further deterioration is expected.

The BCI of contractors in the civil construction industry remained stable at 60 in the 1st quarter.

The building cost index increased by 14% during year 2008. The 2009 increase is expected to be much lower, which is good for the hard pressed consumer.

81% of building contractors and 100% sub-contractors in KZN rated insufficient demand for building work as a constraint.

KZN bucked the generally negative trend in the country by recording positive percentage changes in the following categories of building plans passed in 2008 v 2007: Office and banking space 99% up; Shopping space 35% up; and Industrial space 32% up.

Nevertheless, the total rand value of building plans passed by the larger municipalities during January and February this year decreased by -42% compared with Jan/Feb at -39% , followed by non-residential buildings at -33%. However, it must be remembered that Jan and Feb are traditionally less busy months, and that a better picture is to compare the whole of 2007 with the whole of 2008 (as is described in the paragraph immediately above this one).

While there is no doubt that trading conditions are extremely tough, and that several building firms will cease to trade as a result, the return of cautious optimism in the world economy as evidenced by a 10% average increase in world stockmarkets during March bodes well for the future of our industry in SA.

Clive Hill
Financial Services Manager


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