South African tender prices increase faster than input costs

The latest BER Building Cost Index revealed that the annual growth in tender prices in South Africa remained elevated at 10.9% year-on-year (y-o-y) during the fourth quarter of 2022.

The high increase in South African tender prices followed a similar increase in the previous quarter.

While tender prices are rising, increases in building input costs are starting to moderate.

Building material inflation, for example, slowed to 10.2% y-o-y in October from 11.2% in September.

“Base effects after an acceleration in growth at the end of 2021, coupled with lower commodity prices towards the end of 2022, have reined in input cost increases,” said Craig Lemboe, Senior economist at the BER.

“Unfortunately, those in the industry have lamented that profitability is still under tremendous strain due to the prior period of sustained high input cost growth.”

There are also other costs not fully captured by formal statistical indices on building input costs.

These included costs such as security – which has been increasingly important amid attacks from so-called business forums.

“While recent tender price growth and the quarterly expansion in building demand in Q3 are encouraging signs for businesses, the building construction environment remains difficult to navigate,” said Lemboe.

Looking ahead, the growth momentum in tender prices is expected to be sustained, moderating slowly towards the end of the year and into the next.

“Overall, we expect the escalation in tender prices to exceed input cost inflation over the next few quarters,” he said.