Construction, property sector the star of GDP

Posted On Wednesday, 31 May 2006 02:00 Published by
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Gross domestic product figures continue to tell a good news story about property and construction
Gross domestic product (GDP) figures continue to tell a good news story about property and construction, First National Bank (FNB) said on Tuesday.

Real GDP at market prices increased by 4.2% points in the first quarter of 2006, Statistics SA said earlier on Tuesday.

John Loos, property strategist at FNB, said all sectoral rates of real growth were "dwarfed" by the 13.7% annualised real growth rate of the construction sector. This was higher than the previous quarter's 12.4% growth.

"Even the abnormally bad weather in the first quarter along with reports of skills and some materials shortages, couldn't stop the party, and probably won't stop it for some time," he said.

From a demand point of view, there was little reason to expect much of a slowdown in construction sector growth for some years.

"The growth in value of civil engineering projects awarded in 2005 was a healthy 11.4%, and using a 4-quarter moving average for Q1 2006, year-on-year growth accelerated to 24%," Loos said.

While the residential property sector was cooling off, commercial property building activity appeared to be filling the gap.

"The acceleration of commercial property returns last year to an impressive total sector return of 30.1 percent, unlike the decelerating residential sector, was the third consecutive year of improved returns," Loos said.

The retail property sector was arguably most advanced in the cycle, and while there appears to be much retail-space building still to be completed in the coming years, if plans passed were an indicator, building activity in this property class will probably be the first to subside.

Loos said the construction sector was "on a roll" but warned that it appeared to be battling to keep up with strong demand.

"Skills shortages are in abundance, some materials shortages have been evident, and competition in tendering is reportedly low. Supply constraints in the current strong demand period may well see to it that there is little in the way of oversupply in commercial property space until somewhere in the next decade," he said.

Publisher: I-Net Bridge
Source: I-Net Bridge

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