Lack of orders, regulation hamper optimism in South African property & construction sectors

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14 June 2012 | Category: International business report, News

Just less than half (+49%) of South African businesses in the property and construction sectors are optimistic about their outlook according to Grant Thornton International Business Report (IBR) 2012.

This is lower than the average for all local businesses who reported a +54% optimism balance in the same survey, highlighting the stress under which the local property and construction sectors are currently operating.

“These low levels of optimism are a reflection of the tough trading conditions faced by both the property and construction industries,” says Lee-Anne Bac, head of Property advisory at Grant Thornton. 

“A reduction in orders due to the generally sluggish economy has impacted on these sectors and while we know that government’s infrastructure upgrade is in the pipeline there is no clear indication of when projects will be launched compounding concerns about the future.”

Grant Thornton’s International Business Report tracks quarterly insights into the views and expectations of over 11 500 owners of privately held business in 40 economies. These figures refer to the optimism balance for the one year period from the second quarter of 2011 to the first quarter of 2012. 

The report also highlights that the most significant constraints to doing business in the South African property and construction sectors are regulations and red tape (49%), the lack of availability of a skilled workforce (40%) and a shortage of demand (36%). 

“Although these are the top constraints identified for all South African businesses, they are particularly pertinent to the property and construction sectors; especially a shortage of demand/ orders which is a clear indication of a stagnant industry. Over regulation also has a real strangle-hold on this sector which could lead to further stagnation if not addressed,” says Bac.

However, because most privately held South African companies in these sectors focus predominantly on the local market and have limited international exposure relative to their total assets/ investments, they have been shielded from the poor performance of the global sector. International peers reported an optimism balance of a mere +8%.

The top constraints to doing business in the property and construction sectors internationally are regulation/red tape (29%), lack of long term finance (27%), cost of finance (26%) and lack of working capital (23%), making  three out of four finance related.

The findings show that local property and construction businesses are focussing on business fundamentals – looking to increase turnover and profitability – to improve performance. While this is no different to the strategies employed by business owners in general, it is clear that property and construction businesses see limited opportunity in increasing pricing. 

“This is typical of a stressed and highly competitive sector.  Business owners clearly feel that they have limited room to manoeuvre in increasing prices and the sector is still demand driven or a “buyers market,” says Bac.

So while times remain tough, property and construction businesses are focussing on existing assets and investing in building renovations and machinery.  “Typically not many are investing in new buildings but rather consolidating and improving their current assets in order to be more attractive to potential tenants or clients as the economy turns,” concludes Bac.

Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of 12,000 businesses per year across 40 economies. This unique survey draws upon 20 years of trend data for most European participants and nine years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com.

Optimism balance
An optimism balance is the proportion of business owners reporting they are optimistic less those reporting they are pessimistic.

Data collection
The research is carried out primarily by telephone interview lasting approximately 15 minutes with the exception of Japan (postal), Philippines and Armenia (face to face), mainland China and India (mixture of face-to-face and telephone) where cultural differences dictate a tailored approach.

Data collection is managed by Grant Thornton International’s core research partner – Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis.

Sample
IBR is a survey of both listed and privately held businesses.  The target respondents are chief executive officers, managing directors, chairmen or other senior executives (title dependent on what is most appropriate for the individual country) from 40 economies across the real-estate and construction sector.

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