Growth in building brakes sharply


By Ethel Hazelhurst

Johannesburg - Strong growth in the building sector is tapering off sharply. Although current activity cannot be monitored, an indication of its strength comes from figures on buildings completed and building plans passed.

The Reserve Bank's monetary policy review, released last week, showed that the real value of buildings completed rose only 15.3 percent in the first eight months of 2006, compared with the same period last year. This comes after 36.6 percent year-on-year growth recorded last year. Changes in real values have the impact of inflation stripped out.

And growth in the real value of building plans passed braked from 45.2 percent last year to 3.2 percent. Building plans are an indication of future construction activity. As not all plans are implemented actual building activity is likely to be flat in the months ahead.

The change in tempo comes in response to a less buoyant property market.

"In the non-residential market, returns may not be keeping pace with rises in building costs," said First National Bank property strategist John Loos. "Building cost inflation in the commercial sector is influenced by what has happened in residential property and many materials constraints have probably been caused by the residential boom."

He pointed out the lull in planning had to be seen in the context of a planning boom last year. "Many plans have still to be translated into action, possibly because of rising interest rates."

As a result, growth in the real value of plans for the non-residential market was down to 13.6 percent from 66.3 percent last year. But Loos was confident that the industrial and office property market would "pick up speed".