Building costs threaten development

Posted On Wednesday, 01 February 2006 02:00 Published by eProp Commercial Property News
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BUILDING costs are rising faster than recent figures suggest, and threaten to slow the pace of further development, First National Bank economist John Loos said yesterday.

John LoosBUILDING costs are rising faster than recent figures suggest, and threaten to slow the pace of further development, First National Bank economist John Loos said yesterday.

Building materials inflation rose 5% in December, according to producer price inflation figures out last week, lower than the 9,2% recorded in February last year, but the actual pace of rise was faster than the figures showed, Loos said.

He said that according to the Bureau of Economic Research (BER) building cost inflation was about 20% in the fourth quarter of last year.

Some materials prices were rising steeply.

For instance, Loos said, stock brick inflation was 13,1%, face bricks were rising in price at a monthly rate of 11,3% and cement building blocks at 16,4%.

"With all these subindices having experienced inflation well above the overall index since 2000, it could be argued that in real life their costs are a bigger portion of building than what the index weightings now suggest," he said.

The pricing power of contractors and labour were the main drivers of higher building material costs, although these were not included in the producer price index.

These supply constraints could put brakes on property development in future, Loos said.

The construction industry accounts for 2,5% of SA’s gross domestic product.

Loos said there was also a danger of late completions and resultant penalties for projects, "or tenants walking away from a project not completed on time".

He said the building industry materials with high inflation might soon experience supply constraints.

"The BER reports 87% of building contractors reporting inadequate supply of building material.

"This supply squeeze may be restricted to only a few material types such as bricks and cement in certain areas, but it does not matter. Bottlenecks in supply of these basic materials can obviously delay the whole building process," he said. 

Last modified on Friday, 18 October 2013 04:19

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