Low rates won't boost building

Johannesburg - The decline in building plans in January occurred across the board, and a major recovery is not foreseen over the course of this year despite lower interest rates.

It is unlikely that interest rates will decline significantly enough to see building plans move into positive territory any time soon. Even with lower interest rates, it is likely to take time before there is any increase in the desire to undertake new residential building projects.

Furthermore, there are growing indications that growth in private-sector fixed investment in non-residential building and other projects, which might use cement, is also slowing. Demand in the non-residential sector is expected to remain low due to a low rate of employment and business activity at the moment.

This comes as building plans slid down significantly in January from 25.2% in December 2008 to 52.5% to mark the ninth consecutive decline since April 2008.

A sharp fall was recorded in non-residential building plans, bringing it down to 54.3% (from 22.0% in December), again reflecting the effect of a slowdown in economic activity. Residential building plans passed also plummeted, but by a lower margin, to 47.7% (from 32.1% in December); however, even more sharply than the rest, additions and alterations declined to 57.4% (from 14.8% in December).

On the other hand, building plans completed remained in positive territory, although growth nevertheless still slowed down to 5.6% from 8.8% in December.

This slowdown in overall buildings completed could be attributed to a steep decline in non-residential buildings completed to 18.3% (from 42.1%), as well as additions and alterations, which slowed down to 33.8% (from 46.9% in December). An escalation in year-on-year (y/y) growth in residential buildings completed (to 7.1% from 11.2% in December) was not sufficient to boost overall growth in total buildings completed.

The downward slope of building plans continued in January and is a reflection of a significant underlying weakness in the market, which was further highlighted by a steep decline in cement sales in February.

It has become abundantly clear over the past year that high growth in civil engineering and to some extent in non-residential building activity and the proliferation of projects in preparation for the 2010 Fifa World Cup has been insufficient to outweigh the fall in demand for cement caused by the severe downturn in residential building.

In turn, the slowdown in residential building activity is linked to high interest rates, excessive levels of household debt, falling growth in house prices and in certain instances excess capacity following the residential building boom of 2005/06.

- I-Net Bridge