Nonresidential Buildings, Other than Industrial Buildings and Warehouses
This category covers general contractors primarily engaged in the construction,
- alteration,
- remodeling,
- repair, and
- renovation of nonresidential buildings,
- other than industrial buildings and warehouses.
Included are nonresidential buildings of commercial,
- institutional,
- religious, or recreational nature,
- such as office buildings,
- churches and
- synagogues,
- hospitals,
- museums and schools,
- restaurants and shopping centers, and stadiums.
Along with economic strength, the specific construction categories of this sector are further affected by a range of variables, such as demographic trends, legislation regarding public expenditures and business developments, and social trends. Private nonresidential construction in South Africa has fluctuated according to the success of key sectors such as office buildings and institutions. Nonresidential construction spending dropped by 6 percent in 2003 as even the strongest sectors, such as healthcare construction, began to see previously rapid growth rates slow.
Office construction spending experienced a long-awaited resurgence in the late 1990s, from R36.2 billion in 1997 to R47.5 billion in 1999. While this was excellent news for contractors, 1999 revenues were still 35 percent below their record 1985 level. As the economy as a whole cooled off from its late 1990s surge, the rate of office building construction growth slowed considerably to roughly R43 billion in 2002 and to R39 billion in 2003. Meanwhile, lending institutions, which had eased some of their restrictions on commercial real estate loans, began to tighten up lending requirements. Eyeing the slower growth rate for white collar employment, as well as the economic trend toward downsizing, builders wary of a repeat of the late 1980s disaster were expected to try and rein in runaway construction
In contrast to office construction, the retail construction market has remained strong since the 1980s. Spending on retail construction rose steadily during the late 1990s, from R42 billion in 1996 to R55.4 billion in 1999. About half the value in this category is related to the construction of shopping centers. Especially in recent years, such construction was geared toward big box stores—large non-mall discount stores specialising in focused product categories. In addition, square meterage in these new stores reflected a 6.4 percent increase over the size of existing stores. Leading S.A retailers also continued to spend construction dollars on remodeling existing stores. Supermarkets, in particular, were investing more capital into improving existing stores than on opening new units. Supermarket companies engaged in store remodeling grew from 22 percent to 38 percent between 1997 and 2001. In fact, supermarket store openings fell to a ten-year low in 2001. Offsetting the impact of this decline, however, was the fact that store closings had also reached a decade low rate. The new supermarkets that did open in 2001 boasted square metre of 46,750, compared to 44,072 a year earlier.
This sector includes a wide range of building types,
- including hospitals,
- schools,
- prisons,
- government buildings, and others.
This type of construction has generally been more stable than all other sectors of nonresidential construction. As a result, it commands an increasing share—more than 60 percent as of the early 2000s—of total industry spending. Compared to industrial construction spending, which declined by 3.2 percent in 2001, and to commercial construction spending, which dipped 1.6 percent that year, spending on institutional construction grew 10 percent in 2001.
Educational building construction was very healthy in the late 1990s, with optimistic forecasts into the following decade. Sales in 1998 reached R39.5 billion and were expected to increase to R44.0 billion by 2000. Furthermore, as more schools placed a priority on full Internet service and technological facilities, the construction of new buildings and remodeling of existing ones was expected to follow. However, drastic cuts in educational funding in the early 2000s curtailed construction considerably in this sector. Seventy percent of this construction was of primary and secondary schooling facilities, while colleges, universities, and other educational institutions accounted for the remainder. The vast majority of this construction (80 percent) was for public institutions, though that figure was likely to diminish as state and local budgets continued to be strained while calls for voucher programs and other shifts toward private schooling increased.
The construction of healthcare facilities was largely dependent on legislative activity, which was in an uncertain state of limbo in the late 1990s. As a result, spending was down slightly in this sector, though much less for private hospitals than for public care facilities. Seventy percent of spending in this sector went toward hospitals and clinics, though nursing homes and outpatient centers claimed an increasing proportion of the market. More optimistically, however, analysts expect healthcare facilities to be among the fastest-growing sectors in the entire construction industry in the early 2000s. An aging population is a prime factor for this projected growth, especially as nursing homes and similar facilities flourish. Another indicator for growth is the age of existing facilities.
Legislation pertaining to building societies was frequently changed and augmented over the years, with major acts passed in 1934 and 1965. Nonetheless, certain privileges afforded to and restrictions imposed on the building societies remained. For instance, special tax treatment meant that building societies could offer mortgage loans below market rates, which placed the commercial banks at a competitive disadvantage in this regard.
As part of a comprehensive inquiry into the monetary system and monetary policy in South Africa during 1982 to 1985 (the so-called De Kock Commission), it was recommended that the playing field between banks and building societies be levelled.
The restrictions placed on the way in which building societies could capitalise themselves were especially crucial. These restrictions meant that the societies could only exist as “mutual” institutions. Changes to the legislation caused these restrictions to be removed, and most of the larger building societies opted for a listing on the Johannesburg Stock Exchange – a process which meant that they lost their “mutual society” status.
The listing process started in 1986 and the United Building Society became the first publicly listed building society. Members’ accounts (which were held as so-called subscription shares) were converted into ordinary listed shares. As the boundaries between building societies and banks started to fade and more of the building
societies converted into banks or merged with existing banks, mortgage financing became an important component of banks’ balance sheets. By the mid-1990s, there were no building societies in existence, although 11 had been in operation in 1984.
Currently, banks are by far the most important providers of mortgage finance for housing loans in South Africa. By June 2003, mortgage loans comprised 32% of the total loans and advances on the banks’ balance sheets, and amounted to R289bn
