Building sector in crisis

Johannesburg - The number of building plans passed is at its worst level since 1986, and experts say it will take more than interest-rate cuts to pick the residential sector up.

Statistics SA data released on Wednesday show that the real value of recorded building plans passed by larger municipalities (at constant 2000 prices) from January to December 2008 decreased by 17.2%, or R8.1bn, when compared with 2007. This is a continuation of the decreasing trend since the peak of 36.3% growth in 2005.

Negative growth of 2.4% was recorded for 2007.

"The building stats are horrendous. Looking at the graph, the last time we had four or five months of these levels, or even just one month, was back in 1986, which is a terrible thing," said economists.co.za economist Mike Schüssler.

"Buildings completed is down 17.2% for the year in constant prices, which is the biggest decline since 1999. We are in serious trouble, because people first have to have their building plans passed before they can actually start building, and this just shows that private sector building is just falling off a cliff."

The data showed that decreases for 2008 were reported for residential buildings, which fell by 26.1% or R6.6bn, and additions and alterations dropped by 12.0% or R1.5bn. An increase of 0.6% (R57.7m) was reported for non-residential buildings.

"This could get worse," said Brait's chief economist Colen Garrow, explaining that this is a result of banks being unable to get liquidity from foreign credit lines.

He said people shouldn't expect the market to turn around now that interest rates are decreasing, as the global financial situation has to improve first. "Banks like those in the US need to lend more and more, so that they can be confident to lend to consumers. Once that gets going they'll be comfortable in lending to markets like ours."

"We are not getting liquidity, and people are shying away from building homes because they have to put down bigger deposits. It's a sentiment thing," said Garrow.

Schüssler said the construction sector is "being decimated" - specifically in the residential sector.

"And now non-residential buildings are joining this market. The data gives us a clear indication that construction other than public sector construction is gone. The man and his bakkie have come grinding to a halt."

He said it's going to take a combination of interest rate declines to help the residential sector, and for the non-residential building sector, the world economy and the SA economy needs to pick up.

Schüssler said that this sector is the fourth sector to decline for the whole of 2008, joining the likes of the electricity, mining and retail sectors.

- Fin24.com