Mortgage interest rate cuts bode well for home builders in 2009

2009-01-07 00:00

JOHANNESBURG — A round of interest rate cuts in 2009 will bode well for building and construction firms with exposure to the residential sector.

So says BOE private clients construction analyst Barbara Price-Hughes. “It will take time for them [rate cuts] to kick in,” she told Fin24.com.

She said a cement manufacturer such as Pretoria Portland Cement, will “surely benefit”.

“About 40% to 50% of cement sales go into the residential sector and into low-cost housing — in which [construction firm] Group Five is also involved,” said Price-Hughes.

She said that even though earnings of some of the construction companies will be “fairly flat” throughout 2009, the companies should offer some good dividend yields for shareholders. “But they will probably perform better in 2010.”

Price-Hughes has put construction firm Wilson Bayly Holmes-Ovcon (WBHO) on the top of her heavyweight construction list for 2009, as it is more likely to outperform other more established construction firms listed on the JSE.

According to Industry Insight CEO Elsie Snyman, the second half of 2008 was “tough” for the building industry. “The signs that conditions were going to be tight, based on fewer plans being approved for construction by local authorities, were already there at the start of 2008,” Snyman told Fin24.com, adding that the building industry now bears evidence of the lagged impact of changes to interest rates.

“We expect conditions to remain difficult in 2009.”

In a research note, Snyman said that the construction industry provides job opportunities for over one million people each year and has been identified by government as a catalyst for job creation to reduce unemployment.

“If the situation does not improve, the industry will face significant job losses.”

She said that consumers’ affordability constraints need to be lifted, and that the imminent lowering of interest rates will help this. Also, consumer and business sentiment need to improve.

Once these changes occur, it will take a further 12 months before the impact is felt by industry players because of the time needed to carry a project through from planning to construction, she said.

— Nicole Rego, Fin24.com.

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