Construction
approvals. It is also important to understand leads and lags in this particular
indicator, as an approval of a plan merely suggest the intention to build.
Should the intention persevere, it
could take 12 to 18 months before the
impact can be seen in the building industry. Thus a positive trend in 2012 will
(or could) feed into 2013 etc.
So then what happened in 2013 to
have some people feeling more optimistic about developments in the
industry for 2014? The number of
sqm approved for residential buildings (including new and renovations)
increased by a stronger 4,6 percent, accompanied by a 20,0 percent increase
in the number of sqm approved for
non-residential buildings, increasing
the overall rate from 1,1 percent in
2012 to a much more encouraging 9,5
percent in 2013.
Now in rand terms, the additional
1,281,728 sqm approved in 2013 (totaling 15,248,174 sqm for the year), would
equate to a potential increase of R9bn
(at an average building rate of R7000/
m2). So clearly there is a reason to feel
slightly more optimistic about the future for the industry.
One or two words of caution though.
The economy did not quite perform
as expected during the first 6 months,
with the Reserve Bank already having
introduced two increases in the repo
rate, one in January of 50 basis points
and another in July of 25 basis points.
Business confidence remains weak,
and this continues to be one of the
most important indicators that need
to accompany the increased rate
of approvals for actual building to
materialise.
What we are seeing at the moment, is
an increase in the number of projects
that are being placed on hold, which
according to Databuild has increased
by 126 percent year on year in the first
six months compared to last year.
This “delaying tactic” is also evident in
the growing differential between the
rate by which projects are approved
and those reported as completed. This
ratio has for example increased to 1.64
for office space, compared to an average ratio of below 1.0 in 2009/10.
Even if we compare the rate of approvals a year ago with current completions
we are seeing a growing differential,
and what this means is that even
though plans are being passed, the rate
of completions, and thus construction
is slowing by comparison. So, as we are
correct that indicators may suggest a
“better-than-before” year for 2014, underpinned however by growing risks of
project delays, the same set of indicators are suggesting a potential weaker
2015.
The annual growth in the number of
sqm approved has started to slow down
during the first five months of 2014,
suggesting weaker growth in the next
12 to 18 months.
One factor remains, should the economy improve at a more robust rate, and
business confidence is revived, the industry could experience a stronger than
expected growth, as those previously
shelved projects are dusted off and put
into construction.
Clearly the growth in the number of
sqm approved for private sector construction during 2013 is evidence that
there has been a growth in the demand
for buildings. Now we just need to wait
for the economy to create a more enabling environment.
Elsie Snyman