INSIGHT
back from investing and committing to new infrastructure projects
as well as new capex building works,” he says.
Tightened belts
The increase in interest rates and VAT during the latter part of 2018
has also affected many consumers’ ability to purchase or build new
properties or to renovate and improve their existing homes. Added
to this is the looming threat of possible further downgrades by
international credit rating agencies, particularly with regard to their
concerns around power utility Eskom’s crippling debt levels. Should
this occur, it will likely bring with it an increased risk of further
interest-rate hikes, which will inevitably reduce the affordability levels
of an already financially stretched and indebted consumer base.
Property market correction
A correction in the local residential rental market has also seen
significant pressure being brought to bear on the achievable rentals
of both freestanding homes and apartments, which has led to
a rethink among some developers as well as some ‘buy-to-let’
investors in this market segment, given the reduced return available
on these investments due to lower achievable rental revenue
streams.
“The property market in the Cape has been affected by the
drought. Fortunately, we had a good winter and dam levels were
replenished and that seemed to mitigate against some of the
negativity that the water situation created in the market,” he says.
He also adds that the construction industry has not seen similar
levels of activity since the 2010 World Cup. “The degree of work on
hand has certainly not approached levels we’ve experienced going
back to the 2010 World Cup. The past two years were affected by
A ‘silver lining’ exists for those
developers and investors who
have the courage to commit
to projects in this depressed
climate.”
Allen Bodill, MBAWC
water shortages and also by the general economic
downturn and pressure that consumers were
beginning to feel, which has all contributed to a gradual
slowdown in activity.”
According to Bodill, the rapid advance in
computerised technology has also served to disrupt
the demand for commercial office space by enabling
employees to work remotely, thus reducing the
demand for traditional office environments, with this
trend likely to escalate going forward. “Many of the
abovementioned factors are also an issue for the
industrial market, with demand for new factory and
warehousing space primarily being driven by the state
of the economy. We operate in an industry that is
frequently referred to as a ‘barometer of the economy’.
It reacts rapidly to negative news and is extremely
sensitive to the level of confidence in the economy.”
No-go from government
It also appears likely that the national and local
government departments will be cautious about putting
out new construction works in the current economic
climate. Reduced activity from this sector is likely
to lead to the contracting firms that are traditionally
engaged in this market space, to hunt for work in
other sectors. This will inevitably lead to increased
competition on tenders for the work on offer in the
private-sector market.
A silver lining
“The prevailing depressed market conditions will need
to be considered during the negotiations around the
new collective wage agreement for the formal building
industry in our region, which are currently under way,
with the new agreement due to come into force on
1 November 2019. However, a ‘silver lining’ exists for
those developers and investors who have the courage
to commit to projects in this depressed climate,
as they are likely to get exceptionally competitive
prices from the entire construction supply chain,” he
adds. Furthermore, he says that the region has been
fortunate given the buoyant construction market
along the Atlantic Seaboard, coupled with sizable new
developments being started in the City Centre.
Independent reports indicate that globally, the
‘hired equipment’ market will enjoy a considerable
upturn in 2019. Bodill is encouraged by this news and
believes that members will prefer to continue hiring in
machinery to minimise capital costs in terms of owning
and maintaining plant, coupled with the challenge of
having sufficient continuity of work to consistently
deploy equipment and plant.
40
MAY 2019
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