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Johannesburg - Declining confidence levels among both the residential and non-residential building contractors suggest that the building industry may continue to see a significant slowdown in demand in the coming months, which does not bode well for the overall building industry.
This negative outlook, particularly regarding the residential building industry, will continue to be driven by the upward cycle of interest rates. The probability that rates will increase again in August and October is set to further exacerbate the pressure on the industry.
With regard to the non-residential building sector, the negative impact of rising interest rates and input costs is likely to be counterbalanced, to some extent, by the build-up to the 2010 World Cup.
Year-on-year real growth in total building plans passed declined significantly in May to -36.2% from positive growth of 9.6% in April. This decline was led by decreases in all the three categories namely: non-residential building plans, which recorded growth of -15.6% in May compared to 84.4% in April, growth in residential building plans declined from -3.1% in April to -45.7% in May, and additions and alterations fell to -32.3% from -3.1% April.
The significant declines in all three categories can be partially attributed to the fact that May this year had fewer working days compared with May last year, on account of the extra public holiday declared on May 2. However, the pressures of the high interest rate environment, driven mainly by the rising costs of food and energy prices, remain the main contributing factor to the declines, particularly with regard to the residential sector.
The statistical distortions caused by one less working day in May this year, is clearly seen in the seasonally adjusted month-on-month growth, with total building plans passed declining by -35.4%, after having recorded positive growth for two consecutive months at 29.5% in April and 14.4% in March.
Year-to-date (YTD) growth (January - May 2008) in total building plans passed was positive at 1.6% compared to the same period in 2007, and is primarily driven by growth in non-residential building plans passed (YTD: 16.9%). In contrast, YTD growth in residential building plans passed remained negative at -15.4%, and additions an alterations at -1.8%.
Growth within the non-residential sector is largely being driven by the growth in public investment in construction and civil engineering projects ahead of the 2010 Soccer World Cup. On the other hand, growth in the residential sector continues to be affected by the rising level of interest rates, slowing consumer demand, high input costs, slower growth in house prices, as well as an excess in buy-to-let accommodation.
Y/y growth in total buildings completed declined significantly in May to -26.8% from 1.8% in April, led by declines in residential buildings completed, non-residential buildings completed and additions and alterations decreasing. Year-to-date (YTD) growth in buildings completed was negative at -1.7% compared to the same period in 2007.
- I-Net Bridge