Several months into the recession, the casualties are starting to stack up. And we’re not just talking about the property industry – builders and their contractors are feeling the pinch just as much as estate agents. In fact, it’s as if the economic downturn is playing dominoes, with negative impacts on the construction industry affecting those seeking residential properties.
Rob Johnson of Master Builders Western Cape (MBWC) calls the downturn in the building industry ‘dramatic and rapid’, adding that this these are the worst conditions experienced by the industry for as many as 22 years.
The reasons for this quick decline are manifold, Johnson continues. There is, of course, banks’ reluctance to release money for commercial, residential and industrial developments. This has been exacerbated by the introduction of the New Credit Act, as over-lending is a real concern that makes banks even more reticent to grant credit.
The toll taken is particularly hard given that, during the flush of South Africa’s recent economic boom times, construction was viewed as a plum industry. It had already enjoyed several years of stability, and the spin-offs – increased turnovers and safer profit margins – were significant. Small wonder, then, that the industry attracted an influx of eager entrants, including contractors, suppliers and manufacturers.
Now, all of them are feeling the pinch. According to Johnson, suppliers to the building industry are in as much pain as builders themselves. Cement and brick manufacturers, for example, have seen supply levels drop by 40% year on year. Several brick manufacturers have been forced to close their doors, whilst cement sales have regressed to rates not seen since 1962. They’re not the only manufacturers to experience low production levels, however, and this is affecting suppliers, creating a negative cycle.
As for the builders themselves: Johnson says that there have been a number of companies that have been forced to implement retrenchments in recent months, affecting both skilled and unskilled labourers.
The happenings within the industry have significant implications for property players, too. Johnson notes that with banks curbing lending activity, a number of residential projects have come to an abrupt standstill. Meanwhile, where plans are being approved, they’re greatly reduced in scope: Johnson says that not since 1998 have square-metre levels been so low.
He elaborates further: “Building plans for townhouses and flats are currently standing at around 150 000m² against a high of approximately 550 000m² in 2008. Naturally, this impacts on the building industry, as there is less work available.
“In the Western Cape, a number of new apartment blocks are standing empty, especially along the seaboard. Many investors in these vacant apartments are, I believe, overexposed as the affordability in rentals has dropped dramatically – again, a consequence of the economic climate. This means that several residential developments will remain standing empty,” Johnson continues. “Residential purchasers – whether they’re seeking houses, apartments or townhouses – have to be realistic about what their money will buy, as developers are looking to reduce selling prices by cutting down on finishes like cupboards or the height of tiling in bathrooms. As a result, your money will buy you less than it would have, say, a year ago. Moreover, units in apartment blocks are getting smaller. Already, we’re seeing the average size downscaled from 150m² to 100m².”
Sounds bleak – but is there any hope on the horizon? Johnson’s answer is that government could help to reignite the industry by introducing planned infrastructure projects. The interest rate also has a part to play – obviously, the industry would benefit from a lower rate – whilst a review, and amendments to, bankers’ lending policies would also prove helpful.
In the meantime, however, Johnson says that the downsizing of residential properties may not be all bad, if it makes new property developments more affordable in terms of the NCA. Interestingly, he predicts that we’ll also see the effects of the recession made visible in architecture and design – he reiterates his belief that homes are likely to be built with fewer finishes, whilst homes with double garages are likely to be replaced by houses featuring a single garage and a carport. “I foresee paved brick driveways being replaced with two single rows of concrete slabs, and simpler designs will become the order of the day.”
Perhaps, by the time the building industry and its supply chain has rallied, this specific look will come to be known as ‘recession chic’…
Article courtesy of and is taken from their September/October 2009 Issue.