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Rates will boost building later
Although interest rates began declining in December, it will take a while before the impact begins boosting plans for new residential developments.
Accordingly, negative growth in residential building activity should be anticipated for much of 2009.
In contrast, the historically flat overall trend of non-residential plans passed over the past two years points to modest positive growth in building activity in this segment over the coming year.
The latest building statistics highlight the fact that building activity remains under pressure, led by the significant decline in residential building activity.
The decline in the residential segment can largely be attributed to the financial pressure that households are facing at present.
Year-on-year (y/y) real (seasonally adjusted) growth in total building plans passed recorded a moderate decline in December to -25,9% from -23,5% in November.
Growth in building plans passed has remained in negative territory for eight consecutive months, mainly led by a significant slowdown in residential building activity. The combination of interest rates at levels of 5% above those of mid-2006, excessive household debt levels, a potential negative wealth effect from falling growth in property and share prices, and an oversupply in some segments, contributed towards a negative environment for the residential building industry in 2008.
A huge decline in non-residential building plans passed was the primary reason for the deterioration in growth in total building plans passed in December (it fell to -25,2% from 27% in November, -3,7% in Q4 and 1,3% for 2008 as a whole).
Although, growth in residential building plans showed a slight uptick in December (to 32,6% from -42,8% in November), it still remains in negative territory (as it has for most of last year, averaging -25,1% in Q4 and -38,2% in 2008 as a whole).
Growth within this segment is expected to remain subdued over the short term, given that it is largely driven by movements in monetary policy. Although interest rates were cut in December, the positive effects of this will only be felt by the residential sector during the course of 2009.
Y/y growth in additions and alterations also improved slightly in December (to -13,6% from-16,8% in November), but still stayed in negative territory.
Y/y growth in total buildings completed increased in December to 10,4% from 8,5% in November (and 4,7% in Q4), led by a significant increase in growth of additions and alterations (to 52,5% from 24,7% in November); in addition y/y growth in residential buildings completed rose modestly (to -11,6% from -14,3% in November), although it still remained in negative territory.
In contrast, non-residential building completed slowed down to 45% from 66,5% in November. |
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