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Approved housing renovations in South African cities have moved firmly into negative territory, suggesting the once resilient building materials retail sector could come under pressure, according to the recently released Statistics SA report on building statistics in the private sector for September 2007.

December 5, 2007 By Tom Robbins Cape Town – Approved housing renovations in South African cities have moved firmly into negative territory, suggesting the once resilient building materials retail sector could come under pressure, according to the recently released Statistics SA report on building statistics in the private sector for September 2007. Higher building costs and interest rates have already sent new residential building into decline, but retailers have long argued that consumers simply redirected their spend to renovations on existing homes. Indeed, the building materials retail boom continued even when growth in spending on clothing and furniture began to slow. But since then, furniture sales have begun to decline and there are some predictions that clothing may follow suit. Statistics SA said building plans passed for house additions and alterations in the nine months to September had declined 1 percent to 3.92 million square metres, compared with the same period last year. But in September the decline was 8.7 percent compared with the same month last year. The figures are for larger municipalities. Charles Martin, a senior economist at the University of Stellenbosch’s Bureau for Economic Research, said yesterday that he shared the view that renovations had also declined. But the rand value of renovations continued to rise, climbing 10.4 percent to R12 billion in the nine-month period, Statistics SA said. High building materials inflation can boost profits at retailers as long as they are able to keep margins intact. But distribution group Spar said last month there was concern about future sales growth at its Build It brand, as pressure on discretionary spend would likely hit building materials sales harder than basics such as food. Recent sales growth commentary from both Cashbuild and Massmart, the owner of the Builders Warehouse chain, was positive, though there were signs that the sector was not as strong as it had been previously. Cashbuild said sales in the quarter to December were up 16 percent, but unit sales had fallen 6 percent as customers bought fewer bricks and building blocks. The firm did not specify to which product lines shoppers had redirected spend. However, the retailer trades in the mass market, including many stores in small towns that would not have been captured by Statistics SA. Massmart chief executive Grant Pattison said that building and home improvement sales were still “reasonably good” in the 21 weeks since June. The biggest sub-category, do it yourself – which included power tools – had experienced strong growth but building materials growth, which included bricks, had slowed. Brian Pyle, a portfolio manager at Old Mutual Investment Group South Africa, said that while there was no doubt building materials retail sales of were slowing down, he did not believe sales would decline. “They have likely got a bit softer but I do not believe there has been a train smash,” said Pyle, noting that sales had come off a high base. But he said that after the end of this month’s reporting period for building materials retailers , a more accurate picture would emerge. He added that Cashbuild’s brick sales was an area to watch.