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Johannesburg - Lower interest rates, rising consumer confidence and real growth in house prices will not be enough to entice the major listed construction firms back to the sector just yet.
Although forecasts for the residential property sector are more positive in 2010, constructors will want to make sure growth in demand has reached sustainable levels before they re-enter the market.
Wilson Bayly Holmes-Ovcon and Stefanutti Stocks have been active in the residential sector before, but since 2006 they have pursued new business in the public infrastructure sector and 2010 Fifa World Cup-related projects.
According to Ernst & Young director of assurance Ebrahim Dhorat, confidence in the residential sector is improving marginally, after house prices rose during the third quarter of 2009 for the first time in over a year.
"We should see a gradual recovery in the residential building sector, though not at the levels noted between 1999 and 2005," Dhorat said.
Sapa reported on Tuesday that Rael Levitt, CEO of auctioneers Alliance Group, said the property outlook for 2010 - while still mild - was far better than for 2009, reported Sapa.
"In 2010 people will start spending more as the stock market continues to rally and the economic outlook improves," Levitt said.
FNB property strategist John Loos said the lower turning point of the residential building cycle had been reached and that a slow recovery was taking place. He added, however, that building work remained scarce.
Not out of the woods yet
Mpandekazi Maneli, equity analyst at Cadiz Asset Management, said the residential sector had not benefited from lower interest rates because consumers tended to focus on lowering debt. Sector income was also under strain owing to retrenchments.
"The demand for property has declined substantially," she said. "Things have not improved sufficiently for these companies to deploy a large amount of their resources to this sector."
Said Levitt: "Even though the Fifa World Cup would boost sentiment, and likely cause a bounce in high value residential properties, it unfortunately would not be a magic pill to quickly relieve the downturn."
As most of the 2010 projects are coming to a close, listed constructors will target more state-funded work.
Maneli said contracts related to the World Cup were drawing to a close, requiring construction firms to be innovative in finding alternative continuing business such as roads and international projects.
"New build is not expected to improve in the next 12 to 18 months," she said.
According to Dhorat, construction groups would largely continue to focus on their core competencies rather than trying to diversify into new markets or acquire other companies, even if they have capital available.
"For those still struggling to survive, the focus is on liquidity and cost-cutting," Dhorat said.
- Fin24.com
