South African construction prices forecast to rise by 7.4 per cent in 2017

Portside Tower construction 2012Portside Tower construction in South Africa. (Image source: Discott/Commons)MMQSMace, a leading South African cost consultancy business, and Stellenbosch University’s Bureau for Economic Research (BER) have forecast a South African construction tender price growth of 7.4 per cent in 2017, including 5.3 per cent inflation, and an 8.8 per cent increase in 2018, including 5.1 per cent inflation

Analysis shows that the construction sector in South Africa is suffering amid the country’s wider economic turmoil.

Optimism in the sector is low, with industry respondents reporting negative confidence levels not seen since the 2008/9 economic downturn. 

The data has shown a sharp rise in construction prices of 9.5 per cent in the first quarter of 2017 – good news for construction companies but likely to be balanced out with a restrained performance across the rest of the year. The strong increase in early 2017 has been driven by high national inflation pressure and a marked increase in input costs.

Business plan permissions – a measure of the value of planning permissions granted in South Africa – fell significantly across all construction sectors in March by 16.3 per cent and then more radically in April by 41.2 per cent. Overall, the value of building plan permissions was down by 21.9 per cent year-on-year compared to the same period in 2016.

The economic turmoil has had a particularly serious impact on non-residential construction, which has seen a significant drop in both building plan permissions (down by 67.2 per cent) and completions (down by 62.5 per cent) year-on-year compared to 2016.

This is balanced out by a more positive outlook in the residential sector, which saw a significant upswing (52 per cent) in year-on-year completion value compared to 2016. However, the fall in the construction pipeline is beginning to bite here as well, meaning the sector cannot be relied upon to provide a steady stream of construction work.

Mandla Mlangeni, Director of MMQSMace Cost Consultancy, said: “We’re seeing a strong rise in tender prices in South Africa in 2017 driven by significant input price growth and general inflation here compared to other markets. A lack of business confidence and an uncertain political and economic outlook has led to a stagnation in investment across both the commercial office and residential sectors this year, with increasing reliance on the planned infrastructure pipeline for our forecast of an improved outlook in 2018.”

Overall, the sector is likely to be looking forward to December, when there are hopes that the appointment of a new leader by the ANC will bring some political and economic stability.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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