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Tuesday Jun 19, 2012

Property, construction firms feel heavy stress

Only 49 percent of businesses in the property and construction sectors were optimistic about the outlook in a recent survey, highlighting the stress under which these sectors have been operating.

This is according to Grant Thornton's latest International Business Report, which said the optimism level in South Africa's property and construction sectors was lower than the average for all local businesses, which reported a 54 percent optimism balance.

An optimism balance is the proportion of business owners reporting they are optimistic minus those reporting that they are pessimistic.

Lee-Anne Bac, the head of property advisory at Grant Thornton, said these low levels of optimism were a reflection of the tough trading conditions faced by both the property and construction industries.

"A reduction in orders due to the generally sluggish economy has impacted on these sectors and while we know that (the) government's infrastructure upgrade is in the pipeline, there is no clear indication of when projects will be launched, compounding concerns about the future," she said.

The report showed that the most significant constraints to doing business in the property and construction sectors were regulations and red tape (49 percent), the lack of availability of a skilled workforce (40 percent) and a shortage of demand (36 percent).

Bac said although these were the top constraints identified, they were particularly pertinent to the property and construction sectors.

"Over-regulation also has a real stranglehold on this sector, which could lead to further stagnation if not addressed," she said.

However, the report said most privately held companies in these sectors had been shielded from the poor performance of the global industry because they focused predominantly on the local market and had limited international exposure relative to their total assets and investments.

International property and construction peers reported an optimism balance of only 8 percent.

The report said three of the top constraints in the property and construction sectors internationally were regulation (29 percent), lack of long-term finance (27 percent), cost of finance (26 percent) and lack of working capital (23 percent).

It showed the local property and construction businesses were focusing on business fundamentals, such as increasing turnover and profitability, to improve performance.

This was not different to the strategies employed by business owners in general, but it was clear property and construction businesses saw limited opportunity to increase pricing.

Grant Thornton's International Business Report tracks quarterly insights into the views and expectations of more than 11 500 owners of privately held business in 40 economies. The latest report refers to the optimism balance for the one-year period from the second quarter of last year to the first quarter of this year.

Cape Times

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