South African construction prices set to rise in 2017

MMQSMace, a leading South African cost consultancy business, and Stellenbosch University’s Bureau for Economic Research (BER) have forecast a South African construction tender price growth of 7.4% in 2017, including 5.3% inflation, and an 8.8% increase in 2018, including 5.1% inflation.

Analysis shows that the construction sector in South Africa is suffering amid the country’s wider economic turmoil.

The data has shown a sharp rise in construction prices of 9.5% in the first quarter of 2017 – good news for construction companies but likely to be balanced out with a restrained performance across the rest of the year. The strong increase in early 2017 has been driven by high national inflation pressure and a marked increase in input costs.

Optimism in the sector is low, with industry respondents reporting negative confidence levels not seen since the 2008/9 economic downturn. 

Business plan permissions – a measure of the value of planning permissions granted in South Africa – fell significantly across all construction sectors in March by 16.3% and then more radically in April by 41.2%. Overall, the value of building plan permissions was down by 21.9% year-on-year compared to the same period in 2016.

The economic turmoil has had a particularly serious impact on non-residential construction, which has seen a significant drop in both building plan permissions (down by 67.2%) and completions (down by 62.5%) year-on-year compared to 2016.

This is balanced out by a more positive outlook in the residential sector, which saw a significant upswing (52%) in year-on-year completion value compared to 2016. However, the fall in the construction pipeline is beginning to bite here as well, meaning the sector cannot be relied upon to provide a steady stream of construction work.

Overall, the sector is likely to be looking forward to December, when there are hopes that the appointment of a new leader by the ANC will bring some political and economic stability.

Mandla Mlangeni, Director of MMQSMace Cost Consultancy, said:

“We’re seeing a strong rise in tender prices in South Africa in 2017 driven by significant input price growth and general inflation here compared to other markets. A lack of business confidence and an uncertain political and economic outlook has led to a stagnation in investment across both the commercial office and residential sectors this year, with increasing reliance on the planned infrastructure pipeline for our forecast of an improved outlook in 2018.”