Building costs to level off this year

The rate of increase in building costs was likely to fall more than half this year compared with last year, the Bureau for Economic Research (BER) said yesterday.

Prices of building materials such as bricks and cement have been rising sharply, raising concern that this would put the brakes on growth in the building industry, which is already losing momentum.

BER senior economist Charles Martin said yesterday that in 2003 building costs increased 9,6% from the previous year. In 2004 there was a 14,2% increase and last year the costs soared 17,5%.

He said building costs, which the BER measured by analysing tender prices, increased 6,2% in the first half of this year.

“In view of the sharp increase in building costs last year and the fact that the overall building activity is showing signs of losing momentum, the expectation is that building costs are likely to rise at more moderate rates in the year ahead,” the BER said.

Martin said the costs were likely to increase 7%-8% this year.

The think-tank, based at the University of Stellenbosch, said that confidence among building contractors eased in the second quarter of this year while overall activity in the sector remained at high levels.

The contractor confidence level has fallen from an index value of 94 in the first quarter to 87.

BER said there were signs of moderation in demand in the residential market. He said the trend emerged even before the recent 50-basis-point interest rate increase.

Respondents to the BER survey said building activity slowed down in the second quarter of this year.

Martin said competition for available building work had increased, leading to a fall in contractors’ profit margins. Demand in the nonresidential sector remained strong as it is less susceptible than the residential sector to increases in interest rates.

“Building activity levels and the availability of new building work currently experienced by nonresidential building contractors is at relatively high levels,” Martin said.

Article by: Siseko Njobeni - Business Day -