This document summarizes trends in the South African building industry based on a presentation given by Dr. Johan Snyman. It finds that the residential and non-residential building sectors follow different cycles, with the residential sector bottoming out from a recession while the non-residential sector is projected to bottom out by 2012. Building costs are currently increasing very slowly due to high competition among contractors for projects. The quantity surveying profession is expected to have less work over the coming year as the industry experiences a downturn.

1. MEDIUM-TERM FORECASTING ASSOCIATES
Building Economists Tel 27 (0)21 883 8152
PO Box 7119 Fax 27 (0)21 887 1597
STELLENBOSCH 7599 E-mail mfa@iafrica.com
Fasten Your Seatbelts: Trends in Building
Demand and Building Costs
ASAQS Conference 2010
Dr Johan Snyman
Director
Medium-Term Forecasting Associates
28 October 2010

2. Framework
Introduction
Kuznets Building Cycles
Market Sectors: Residential
Non-residential
Building costs: Haylett
Tender Prices
Summary: What does this mean for the
Quantity Surveying Profession?

3. Purpose of this talk
•We try to make some sense out of divergent trends in
building demand
• We will show that there are two building cycles, one in the
residential sector, and one that reflects non-residential
building demand
• We will focus on the relationship between building
demand and trends in building costs
• We will try to explain how this will affect members of the
quantity surveying profession

4. GROSS FIXED CAPITAL FORMATION AS PERCENTAGE OF GDP
0
5
10
15
20
25
46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09
Source: SARB; MFA DATABASE
PERCENTAGE
SISHEN-
SALDANHA
RICHARDS
BAY
HARBOUR
ESKOM
POWER
STATIONS
SASOLS
II & III
SHARPE-
VILLE
MOSS-
GAS
TELKOM
FIFA
WORLD
CUP,
ESKOM,
TRANSNET,
GAUTRAIN
INVESTMENT IS THE ENGINE OF GROWTH ...

5. Simon Kuznets 1901– 1985
Russian-American Economist Nobel Prize-winner 1971

6. INVESTMENT IN TOTAL HOUSING 1946 - 2012
AT CONSTANT 2009 PRICES
0
10000
20000
30000
40000
50000
60000
46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12
Source: SARB; MFA DATABASE
RmATCONSTANT2009PRICES

7. KUZNETS BUILDING CYCLES
INVESTMENT IN PRIVATE HOUSING
0
10000
20000
30000
40000
50000
60000
46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Source: SARB; MFA DATABASE
RmATCONSTANT2009PRICES
I
II
III
16 YEARS 16 YEARS 20 YEARS
IV

8. KUZNETS BUILDING CYCLES IN SOUTH AFRICA
PRIVATE HOUSING INVESTMENT vs POPULATION INDEX 1946 = 100
0
100
200
300
400
500
600
700
800
900
1000
46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Source: SARB, StatsSA; MFA DATABASE
INDEX1946=100
POPULATION HOUSING INVESTMENT
KUZNETS WAVES
I
II
III
IV
16 YEARS 16 YEARS 20 YEARS

9. PRIVATE HOUSING INVESTMENT vs NET MIGRATION
INVESTMENT AT CONSTANT 2009 PRICES (Rm)
0
10000
20000
30000
40000
50000
60000
46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Source: SARB; SSA; MFA DATABASE
RmATCONSTANT2009PRICES
-10000
0
10000
20000
30000
40000
50000
NETMIGRATION
PRIVATE HOUSING NET MIGRATION

10. MFA COMPOSITE LEADING INDICATOR (CLIBI)
FOR THE SOUTH AFRICAN BUILDING INDUSTRY
0
10
20
30
40
50
60
70
80
90
100
| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10
Source: FNB / BER; SARB; MFA DATABASE
PESSIMISM<50>OPTIMISM
OPTIMISM
PESSIMISM

11. MFA COMPOSITE LEADING INDICATOR (CLIBI)
FOR THE SOUTH AFRICAN BUILDING INDUSTRY
0
10
20
30
40
50
60
70
80
90
100
| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10
Source: FNB / BER; SARB; MFA DATABASE
PESSIMISM<50>OPTIMISM
OPTIMISM
PESSIMISM

12. ARCHITECTS, QUANTITY SURVEYORS & BUILDING CONTRACTORS
BUSINESS MOOD
0
10
20
30
40
50
60
70
80
90
100
| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10
Source: FNB / BER; MFA DATABASE
PESSIMISM<50>OPTIMISM
Contractors Architects Quantity Surveyors
OPTIMISM
PESSIMISM

13. INVESTMENT IN RESIDENTIAL BLDGS AT CONSTANT 2009 PRICES
1960 to 2010 (SEASONALLY ADJUSTED QUARTERLY DATA)
0
10000
20000
30000
40000
50000
| 61 | 64 | 67 | 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09 |
Source: SARB; MFA DATABASE
RANDMILLION

14. TOTAL RESIDENTIAL BUILDINGS ANNUAL PERCENTAGE CHANGE
1960 - 2010 ( 3 QUARTER MOVING AVERAGE )
-30
-20
-10
0
10
20
30
40
| 61 | 64 | 67 | 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09 |
Source: SARB; MFA DATABASE (ECONOMIC UPSWINGS SHADED)
ANNUALPERCENTAGECHANGE

15. INVESTMENT IN NON-RES BUILDINGS AT CONSTANT 2009 PRICES
1960 to 2010 (SEASONALLY ADJUSTED QUARTERLY DATA)
0
20000
40000
60000
| 61 | 64 | 67 | 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09 |
Source: SARB; MFA DATABASE
RANDMILLION

16. TOTAL NON-RESIDENTIAL BUILDINGS ANNUAL PERCENTAGE CHANGE
1960 - 2010 ( 3 QUARTER MOVING AVERAGE )
-30
-20
-10
0
10
20
30
40
| 61 | 64 | 67 | 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09 |
Source: SARB; MFA DATABASE (ECONOMIC UPSWINGS SHADED)
ANNUALPERCENTAGECHANGE

17. INVESTMENT IN RESIDENTIAL & NON-RESIDENTIAL BUILDINGS
AT CONSTANT 2009 PRICES
0
20000
40000
60000
| 61 | 64 | 67 | 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09 |
Source: SARB; MFA DATABASE
RANDMILLIONSEASONALLYADJUSTED
NON-RESIDENTIAL RESIDENTIAL

18. INVESTMENT IN TOTAL HOUSING 1946 - 2020
AT CONSTANT 2009 PRICES
0
10
20
30
40
50
60
46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: SARB; MFA DATABASE
RANDBILLION
LONG TERM
GROWTH
2 % p.a.

19. INVESTMENT IN TOTAL NON-RESIDENTIAL BUILDINGS 1946 - 2020
AT CONSTANT 2009 PRICES
0
10
20
30
40
50
60
70
80
46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: SARB; MFA DATABASE
RANDBILLION
LONG TERM
GROWTH
2.3% pa

20. DEFINITION OF BUILDING COSTS
COST TO THE BUILDER?
or
COST TO THE CLIENT?
HAYLETT FORMULA = COST TO THE BUILDER
TENDER PRICES = COST TO THE CLIENT

21. BER BUILDING COST INDEX ANNUAL PERCENTAGE CHANGE 1962 - 2014
-10
-5
0
5
10
15
20
25
30
35
40
| 63 | 66 | 69 | 72 | 75 | 78 | 81 | 84 | 87 | 90 | 93 | 96 | 99 | 02 | 05 | 08 | 11 | 14
Source: BER; MFA DATABASE (ECONOMIC UPSWING PHASES SHADED)
ANNUALPERCENTAGECHANGE

22. Salient features of fluctuations in the BER Building Cost
Index
The APC rises more rapidly in upswing phases of the business
cycle as profit margins of building contractors expand.
The APC rises less rapidly during downwsing phases as profit
margins shrink.
The rate of increase is usually higher during the long growth
phases than during shorter growth phases in the overall
economy.
The most rapid rate of increase occurs towards the end of the
growth phase.
Tender prices fall in absolute terms during severe recessions;
this situation confronts us now.

23. HAYLETT AND BER BUILDING COST INDEX COMPARISON
INDEX 2005 = 100
0
50
100
150
200
250
| 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 00 | 03 | 06 | 09 | 12 |
Source: BER; SARB; STATS SA; MFA DATABASE
INDEX2005=100
HAYLETT BER BCI
HAYLETT
(INPUT
COSTS)
BER BCI
(TENDER
PRICES)

24. HAYLETT AND BER BUILDING COST INDEX COMPARISON
ANNUAL PERCENTAGE CHANGE
-10
-5
0
5
10
15
20
25
30
35
40
| 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 00 | 03 | 06 | 09 | 12 |
Source: BER; STATS SA; MFA DATABASE
ANNUALPERCENTAGECHANGE
HAYLETT BER BCI (Economic upswings shaded)

25. LABOUR & MATERIALS SHORTAGES
0
10
20
30
40
50
60
70
80
90
100
| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10
Source: FNB / BER; SARB; MFA DATABASE (Economic upswings shaded)
LESSSEVEREBOTTLENECKS/SEVEREBOTTLENECKS
Materials Labour

26. BUILDING CONTRACTORS: THE DEGREE OF COMPETITION IN
TENDERING
0
10
20
30
40
50
60
70
80
90
100
| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10
Source: FNB / BER; MFA DATABASE (Economic upswings shaded)
LESSKEEN<50%>VERYKEEN

27. COMPARISON BER BCI ANNUAL PERCENTAGE CHANGE
& COMPETITION IN TENDERING
-10
-5
0
5
10
15
20
25
30
35
40
| 72 | 77 | 82 | 87 | 92 | 97 | 02 | 07 |
Source: BER; MFA DATABASE
BERBCIANNUAL%CHANGE
0
10
20
30
40
50
60
70
80
90
100
COMPETITIONINTENDERING
(INVERTED)
BER BCI APC COMPETITION

28. TENDER PRICES (INCLUDING PROFITS)
PROFITABILITY = --------------------------------------------------------
INPUT COSTS (EXCLUDING PROFITS)

29. PROFITABILITY INDICATOR
(OUTPUT PRICES DIVIDED BY INPUT COSTS)
60
70
80
90
100
110
120
130
140
150
| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10 | 13 |
Source: BER; STATS SA; SARB; MFA DATABASE (ECONOMIC UPSWINGS SHADED)
INDEX

30. AVERAGE NUMBER OF TENDERS RECEIVED PER BUILDING PROJECT
0
2
4
6
8
10
12
| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10
Source: BER; MFA DATABASE (Economic upswings shaded)
NUMBEROFTENDERSPERPROJECT
TREND
BREAK
ONLY 3 TENDERERS ON AVERAGE in 2007
THE SHADED AREAS REPRESENT
THE UPSWING PHASES OF THE
BUSINESS CYCLE
BUILDING
BOOM

31. Summary
• The industry as a whole is in recession
• The residential market seems to be bottoming out
• The non-residential sector has reached a peak and is
currently in a downtrend; it could bottom out by 2012
• Building cost increases are currently very low because
of very keen competition in tendering amongst building
contractors
• Quantity surveyors will have less work during the
coming year, so, please fasten your seatbelts!

32. THANK YOU FOR YOUR
ATTENTION!
MORE QUESTIONS DURINg
TEA TIME?
Johan Snyman
Tel 021-883 8152
mfa@iafrica.com