Growth in building plans passed and completed improved in October, but the sector continues to show severe weakness.
Residential building statistics, in particular, continued to show weak performance in October.
In line with the continued decline in plans passed, residential plans completed declined by a weak -35% y/y, albeit showing some improvement from –39,4% y/y in September. Aside from household balance sheets remaining severely strained by over-indebtedness, declining employment figures, as well as high liquidation and insolvency numbers, have weighed down heavily on the housing market.
Even though interest rates have fallen sharply, recessionary conditions and the fear of losing one's job have encouraged homeowners to reduce debt levels rather than to spend on big new projects. The bait of much lower interest rates and less stringent credit requirements has clearly been insufficient to entice renewed interest in the market.
Growth in both building plans passed and completed improved notably in October, following weaker figures for Q3 2009. Growth in building plans passed rose to -15,7% y/y from -17,7% in September, while growth in building plans completed showed a more impressive recovery to -23,7% y/y from -35,3% in September.
Despite the improvement in the y/y growth of plans passed, the YTD figures paint a more pessimistic picture of the building industry. Total building plans passed declined by a much lower -27,2% y/y during January to October 2009 compared to -15% for the same period in 2008. YTD growth in total buildings completed averaged -13,2% for the period January to October 2009, compared to -0,9% for the same period in 2008.
Given the lagged relationship between building plans passed and completed, one anticipates a much steeper decline in buildings completed in a few months' time. This is a great threat to employment in the construction and building sector, as the sector is so labour intensive.
Any hopes that the residential building sector might be starting to revive on the back of the 5% reduction in interest rates over the past year and an easing up of lending restrictions by banks, appear to have been dashed by the October building plans passed figures. Residential building plans passed declined for the 20th consecutive month in October on a y/y basis, recording a further -21,3% y/y decline.
In contrast to residential building statistics, which have been severely depressed for over a year now, it has only been over the past six months that non-residential building activity has come to feel the draught of recession.
It is therefore encouraging that the improvement in total plans passed and completed was largely attributable to the remarkable improvement in the growth of the non-residential buildings components. Growth in non-residential building plans passed rose from -30,6% y/y in September to -1% in October, while growth in non-residential buildings completed improved from -42,2% y/y to – 11,3%. This may be an indication of improving business confidence in the economy.
In the wake of the 5% decline in interest rates since December 2008, one ought gradually to see a turnaround for the better in the fortunes of the residential building sector, but hardly back to the buoyant levels of the past.
In the non-residential segment, growth is likely to remain relatively subdued on the back of the recession of the past year, but should not slide unduly far given expectations of some recovery in the overall economy next year. – I-Net Bridge
Readers' Comments Have a comment about this article? Email us now.
