In search of a silver lining

30-06-2011

Dark clouds remain fixed over the building-construction industry as non-residential building activity is now also contracting.

In contrast to the residential sector, building activity on the non-residential front has until now been able to put up a brave face. But, in the first quarter of 2011, real gross fixed capital formation in non-residential building contracted (1%) for the first time in 8 years. Over the same period, real gross fixed capital formation in residential buildings were down by 5%.

As a silver lining around the dark cloud, fewer contractors are now reporting that building activity is down when compared to a year earlier. This is according to the BER at Stellenbosch University. In its survey, the Bureau for Economic Research ask a panel of residential and non-residential contractors to rate whether building activity was “up”, “the same” or “down” when compared to a year ago. The percentage reporting “down” is then subtracted from the percentage respondents saying “up” to arrive at a net percentage balance. Despite still being negative in the second quarter of 2011, the northward trend of the metric since 2009 does imply that fewer respondents are now of the opinion that conditions are getting worse (see corresponding graph).

Building activity is, of course, driven by property fundamentals. The first hesitant stirrings of an improvement in the commercial property market are discernible, but don’t hold your breath as yet. As for residential properties, there is not even a hesitant stirring. Hence, the prospects for the building-construction industry remain rather poor. To survive, players in this industry will have to exploit niches.