Private sector records 11.9% decline in building plans

The number of building plans passed in September by the country’s larger municipalities was 11.9% lower in value than a year ago, and the residential segment was the biggest loser.

The preliminary data submitted by local government institutions suggests the value of building plans passed by municipalities between January and September 2023 dropped by R10.33 billion to R77.57 billion compared to the same period a year ago.

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This is according to the latest building statistics released on Thursday by Statistics South Africa, which looked at the private sector’s building activity in terms of building plans passed and buildings completed.

According to the research, the value of buildings reported as completed in the period under review dropped by 19% to R41.4 billion, while the value of building additions and alterations declined by 49.7% to R6.65 billion.

Concerning

The decline in investment in the property sector is a cause for concern for the South African Property Owners Association (Sapoa), with its CEO, Neil Gopal, telling Moneyweb that it will have ripple effects on South Africa’s economy.

“What this means is that there are fewer jobs created and fewer opportunities for people to be meaningfully employed,” he says.

“Local authorities will also continue to see a decline in the revenue stream that they could have generated from new developments.”

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According to Gopal, the country’s poor economic environment – characterised by anaemic growth, high unemployment, poor wage growth and dilapidating infrastructure – is a key repellent for new investment.

Elevated interest rates have also restricted the sector’s growth as they have raised the cost of borrowing for investors, adding to the burden that higher municipal rates and taxes have already placed on the market.

“The unsustainable municipal rates regime and water hikes, water shortages, infrastructure collapse and degradation, intermittent power cuts coupled with ongoing electricity hikes, additional costs to go solar, and crime results in higher costs,” Gopal says.

Office growth

The residential property sector lost the most value in building plans passed, coming in at R39.16 billion, a 16.4% (or R7.66 billion) decline.

On the upside, non-residential buildings are seeing some positive action, with the value of building plans passed increasing marginally by 1.5% to R16.48 billion in September 2023.

Improvement has also been recorded in the office and banking spaces, where the value of building plans passed more than doubled to R2.5 billion from R1.126 billion in 2022.

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The office sector has, in recent years, underperformed other segments and reported higher vacancies as office space fell out of favour with investors as a result of the work-from-home phenomenon that took root during the height of the Covid-19 pandemic and the subsequent shift to a hybrid working environment.

The value of plans passed for shopping space also grew, registering an 8.6% jump to R3.64 billion from R3.35 billion last year.

Provincial view

KwaZulu-Natal saw a R5.72 billion (37.5%) drop in the value of building plans passed compared to the same period in 2022.

The Northern Cape, North West and Limpopo also saw declines.

The Western Cape and Gauteng weren’t spared either – and although their proportional differences in the past year were not as great, their sheer economic impact placed them in second and third place in terms of value lost after KwaZulu-Natal, with R1.73 billion and R1.26 billion less value in building plans passed for the period respectively.

The Western Cape reportedly also saw the second largest decline in the value of buildings completed, dropping by 44.9% to R11.78 billion, behind the Northern Cape, which saw a 48.2% decline to R313 263 million.

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Sapoa’s Gopal says the sector’s prospects can only begin to take a turn once the burdens placed on it – including the construction mafia, infrastructure failures and persistent power cuts – are lifted.

“We do foresee an uptick in business sentiment in 2024, but this would largely be dependent on the interest rate outlook, more stable electricity supply, a significant and sharp focus on the ongoing water shortage problems at the municipal level, an increase in government infrastructure spending and a more concerted effort to address the ongoing problems with the construction mafia,” Gopal says.

This articles was republished from Moneyweb. Read the original here