Johannesburg - Growth in building plans passed and
completed improved in October; however, the sector continues to show severe
weakness.
Residential building statistics, in particular, continued to show weak
performance in October.
In line with the continued decline in plans passed, residential plans
completed declined by a weak -35.0% y/y, albeit showing some improvement from -39.4% y/y in September.
Aside from household balance sheets remaining severely
strained by over-indebtedness, declining employment figures, as well as high
liquidation and insolvency numbers, have weighed down heavily on the housing
market.
Even though interest rates have fallen sharply, recessionary conditions and
the fear of losing one's job have encouraged homeowners to reduce debt levels
rather than to spend on big new projects.
The bait of much lower interest rates
and less stringent credit requirements has clearly been insufficient to entice
renewed interest in the market.
Growth in both building plans passed and completed improved notably in
October, following weaker figures for Q3 2009. Growth in building plans passed
rose to -15.7% year on year (y/y) from -17.7% in September, while growth in building plans
completed showed a more impressive recovery to -23.7% y/y from -35.3% in
September.
Despite the improvement in the y/y growth of plans passed, the year-to-date figures
paint a more pessimistic picture of the building industry. Total building plans
passed declined by a much lower -27.2% y/y during January to October 2009
compared to -15.0% for the same period in 2008.
Year-to-date growth in total buildings
completed averaged -13.2% for the period January to October 2009, compared to -0.9% for the same period in 2008.
Given the lagged relationship between building plans passed and completed,
one anticipates a much steeper decline in buildings completed in a few months'
time. This is a great threat to employment in the construction and building
sector, as the sector is so labour intensive.
Any hopes that the residential building sector might be starting to revive
on the back of the 5% reduction in interest rates over the past year and an
easing up of lending restrictions by banks, appear to have been dashed by the
October building plans passed figures.
Residential building plans passed
declined for the 20th consecutive month in October on a y/y basis, recording a
further -21.3% y/y decline.
Non-residential activity
In contrast to residential building statistics, which have been severely
depressed for over a year now, it has only been over the past six months that
non-residential building activity has come to feel the draught of recession.
It is therefore encouraging that the improvement in total plans passed and
completed was largely attributable to the remarkable improvement in the growth
of the non-residential buildings components.
Growth in non-residential building
plans passed rose from -30.6% y/y in September to -1.0% in October, while
growth in non-residential buildings completed improved from -42.2% y/y to -11.3%. This may be an indication of improving business confidence in the
economy.
In the wake of the 5% decline in interest rates since December 2008, one
ought gradually to see a turnaround for the better in the fortunes of the
residential building sector, but hardly back to the buoyant levels of the past.
In the non-residential segment, growth is likely to remain relatively subdued
on the back of the recession of the past year, but should not slide unduly far
given expectations of some recovery in the overall economy next year.
- I-Net Bridge