Conditions in the building industry were until recently fairly optimistic. The formal residential market (middle to upper income housing) performed well during the past two years, stimulated by lower interest rates, higher levels of disposable income and positive domestic consumer confidence. Investment in buildings (both residential and non-residential) rose 5.4% during 2001, largely driven by investment in housing.
The building industry is first and foremost driven by the private sector, making it extremely vulnerable to factor such as interest rates, confidence levels and sustainable economic growth. As the perception of risk increases, particularly in view of price instability, investment inevitably decrease. Thereafter it takes a considerable amount of time for confidence to return, even after the enviroment has improved and become more conducive t investment. The lag between improved conditions and a recovery in the building industry is estimated between 9 and 12 months. For this reason , the outlook for the industry, driven by potentially higher interest and price instability, is weak for 2002 to 2003.

Conditions in the building industry cannot be isolated from domestic and global events. Furthermore, the role of confidence within not only domestic markets, but also foreign markets, cannot be disregarded. A few key indicators in the industry, unfolding the current and future trends, performed relativley well during the recent past, particularly when compared to the performance levels during 1998/99. However, structural impediments continue to hamper growth. These include issues such as low savings rate versus the high debt to disposable income rate and inadequate investment in gross fixed capital formation when compared to other emerging markets. South Africa's vulnerability to foreign portfolio investment is probably the most significant barrier to achieving higher levels of domestic growth, as this requires interest rates to be kept at artifiially higher levels.

Fortunately, other role players such as the national and provincial governments , and increasingly the local authorities, also contribute to investment in the building industry, albeit to a lesser extent. Whilst private sector funding is decreasing, the availability of funding has increased. Contributing less than 30% of total investment in buildings, this will however not be sufficient to prevent an overall slowdown in the industry during the next couple of years.

Training and skills development remains a further priority in the industry, and although a contribution to the national skills levy is mandatory, few players actively are participating in programs, the Master Builders Association in the Southern Cape will from next year ( 2003) have in place a system of on site training and it is hoped that this scheme will bring about an improvement in not only the availablitity, but also the all round skill of the artisans in our area.

The Garden route has some of the finest Building contractors in the country with experience in all fields, but we are at times still passed over for contractors and building professionals from out of town. We are at present experiencing improved conditions with most of the contractors very busy at present albeit mostly domestic work.

Building costs in the area are competitive and compare favourably with similar costs around the country, with the added advantage being that the local builder knows the conditions locally.
We also strongly recommend the use of properly registered building contractors.

Thanks

Alf Zehmke.
Area Manager
Southern Cape MBA.