Nuts and bolts of the property boom

Posted On Thursday, 10 February 2005 02:00 Published by eProp Commercial Property News
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You don't necessarily need to own bricks and mortar to take part in the property boom.

john gomersallYou don't necessarily need to own bricks and mortar to take part in the property boom.

While banking stocks have been grabbing the headlines of late, the construction and building materials sector has been quietly soaring.

Analysts say the rate at which share prices in the construction and building materials sector have risen over the past two years may slow down but they maintain that the party?s not over yet.

Building activity will continue to increase and industry players are bullish, saying that sales and earnings will improve again in 2005. Darryll Castle, an analyst at Stanlib, says the continued growth in
this sector will depend on the state of the consumer, and "right now he is looking quite healthy".

The growing wealth of the black middle class and its ability to raise mortgages from banks is expected to spur growth in the industry. Allan Gray portfolio manager Arjen Lugtenburg also says the sector is
looking "good" and will be helped by increased government spending on infrastructure.

Tile manufacturer and importer Italtile says earnings were up by 20% to 25% last year and will be much the same this year, says its financial manager Michael Anderson.

Clive Archer, president of the Clay Brick Association, says sales last year were the best since 1989 and the industry is "booming".

Building material group Cashbuild, which supplies DIY and small and new building companies, recorded sales of R1-billion for the first time in the first half of the current year to June, according to chief executive Pat Goldrick.

John Gommersall, chief executive of Pretoria Portland Cement, says sales in the year to September are expected to rise between 6% and 8%.

The Cement and Concrete Institute echoes these figures and predicts a rise in cement sales of 8% to 10% this year.

Residential building will lead demand this year, but industrial and commercial construction is taking off too.

But Ralph Patmore, CEO of Iliad Africa, is concerned that growth in residential property will disappoint this year. "There will certainly not be the same growth [as last year] but there is no bubble [in real estate] and there won't be a collapse," he says.

"Rental yields have declined and prices of luxury houses and middle-class houses are reaching a peak," he says, but adds that there?s plenty of steam left in the "affordable housing" segment.

Victor Hugo of HugoCapital.com, says the central debate is which way the rand and interest rates will go.

Technically, the construction and building material sector is "very overbought", he says. Market players looking for consolidation will delay taking a view until there is evidence of momentum reviving or interest
rates are cut. The JSE's Construction and Building Materials index is above 20000 points, which is relatively high, but there could be a pullback towards its six-month moving average.

Hugo says there is technical support at about 16900 points - a 16% pullback from current levels.

He says the six-month trend is intact, however, so "wait for the pullback" before buying. The window of opportunity will be between late March and June.

"On a one- and two-year basis, the sector will do well", and may jump 25% from its current levels.

 

Last modified on Monday, 21 October 2013 12:25

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