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An article appeared on Fin24 over the weekend with the title below. The title could be changed to “Construction braces for frigid decade.” We cautioned readers that construction was a bleak industry to be in over the coming 5-10 years, maybe even longer. Our reasons are listed in the numerous HA articles referenced below.
Construction braces for frigid 2010
Pretoria – The civil construction industry could shrink by almost 40% this year – but higher confidence levels indicate the industry remains hopeful.
This is evident from the latest industry survey by the South African Federation of Civil Engineering Contractors (Safcec).
Until now the expectation has been that the industry could contract 25% in 2010.
Safcec economist Henk Langenhoven said that the sharp contraction is not a consequence of the FIFA World Cup soccer tournament or the economic crisis.
It largely arises from an “institutional vacuum” at the level of municipal and provincial government, in particular.
Leaders are struggling to make investment decisions, there is a lack of technical expertise and a regulatory framework – as well as political interference and corruption.
Although the general economy is slowly starting to recover, capital expenditure – by government in particular – is down.
Capital expenditure by government institutions rose 41% last year, but in the first quarter of this year was only 7% up. At all government levels capex declined by 8% in the first quarter (2009: 1.2%).
Although at the time of the February budget government promised R846bn worth of capital investment over three years, Langenhoven pointed out that this money would actually flow over a longer period. It takes, for instance, seven years to build a power station.
Safcec data showed that the number of invitations to tender declined by 16% in the year to end-March. In the second half of that year it was down one-fifth compared with the same period a year before.
The value of tenders awarded in the six months to end-March fell by 62%.
Read HA related posts
How did the construction sector get it so wrong? 27 Oct 2009
State of play in SA: The post-party reality, 29 July 2010
The FIFA 2010 bubble, 4 Feb 2010
Stimulus is a phantom menace, 24 Feb 2010
I am considering buying a residential property in Nelspruit Mpumalanga. I know that it is a buyers market, so I should find a good deal. What Im concerned about is that there will be further falls in house prices. How do you guys see the next 2 – 5 years playing out?
Thanks for a great website!
Steve, we are not investment or financial advisors and there are many factors you must consider before making the purchase.
Our outlook for residential real estate is summarised here http://www.humanaction.co.za/2010/06/fundamental-outlook-for-residential-real-estate/
To answer your question, we see broad real estate indices – such as Absa & FNB indices – staying flat or rising slowly over coming 5 years (in Rand terms).
Risks to house prices are firmly on the downside, however, as we expect a couple more sovereign debt crises that will lead to more major credit crunches over the next few years.