PROPERTY: Cement Price Increases Could Hurt Property
Recent Western Cape Business News
In spite of the fact that inflation appears to be declining from its peak heights of 2008, another cement price increase could be on the cards for 2009.
A recent communiqué from PPC to the industry indicated that this major cement producer will be implementing price increases of around 16% for various types of cement from 1 January 2009. This follows an average increase of 8,5% in January of 2008.
The news has been received with dismay by the South African Property Owners Association (SAPOA), which represents major commercial, industrial and retail property owners across the country. SAPOA CEO Neil Gopal comments that another cement price increase could have negative implications for the property industry, especially given the recent indications that overall inflation is beginning to decline.
“Another cement price increase will raise the cost of building projects even further in a market that has already been plagued by many other uncertainties in the past year,” says Gopal. Apart from the impact that it will have on infrastructure and housing projects, which are of national importance, he says another price increase will place even more strain on the private sector – and developers in particular, who are already under pressure from other quarters.
Kumarsen Thamburan, chairman of SAPOA’s Building Development Committee, says, “The price of building materials is placing huge pressure on the market and current steel prices seem to exacerbate the inflation in construction prices. A large contribution to the increase in the cement price has been due to demand of the commodity for various 2010 infrastructure and stadia projects.”
Thamburan comments that both cement and steel prices have placed developers in a difficult position because of its adverse effect on construction budgets and this inadvertently has had a negative effect on returns of building projects. It is certainly evident at this point, that feasibilities of various projects have been placed under severe strain.
An assessment carried out in October 2007 by the Competition Commission revealed that the cost of building materials had risen some 80% over the preceding seven years, while PPI only rose by 60% over the same period.
According to Investec’s SA Economic Research PPI Update, producer price inflation eased to 14.5% year on year in October 2008, compared with a previous figure of 16% y/y in October 2007.
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