The April StatsSA building stats suggest ongoing weakness in residential building activity. For the month of April alone, square metres' worth of residential buildings completed declined year-on-year by a massive -34.1%, compared to -38.4% in March. Bearing in mind that Easter shifted back into April, from March in 2009, this suggests that the genuine year-on-year decline may have been significantly less in April, compared to March, had this not been the case. However, Easter aside, the numbers remain very weak. On a 3-month basis, for the 3 months to April, the year-on-year decline was -36.9%, which was similar to the -42% decline for the 3 months to March.

However, in the area of residential plans passed, a better sign of things to come, we have seen a significant diminishing in the year-on-year decline, which points towards some stabilisation in building activity later in 2010 at a low level. For the 3 months to April, the year-on-year decline in square metres' of plans passed was -14.6%, which is now far better than the sharp decline of -49% as at August 2009 (the worst point in the recent slump).

The ongoing weakness in building activity remains the lagged response to very weak demand during the recession times of 2008/9, as well as being the result of oversupplies that were created in the boom years.

Other key features of the building stats are:

* Larger-sized houses, above 80 square metres, appear set to do slightly better in the near term than the smaller sized categories. For the 3 months to April, square metreage of plans passed for homes larger than 80 square metres in size showed only -1.8% year-on-year decline. By comparison, the flats and townhouses category declined by -44.3%, and houses smaller than 80 square metres declined by -15.1% over the same period. This may have something to do with the established family 3 bedroom home market having been more stable over the cycle than especially the smaller flats and townhouses category. It is believed that the area of flats and townhouses was where oversupplies were created on a larger scale, due to this market having been a major buy-to-let, 1st time buying and speculative target, and all of these forms of demand now remain in the doldrums.

* We have thus seen the average size of home planned for construction rising, from 101 sq.m as at October last year to 132 square metres in April.

* Average value per square metre of buildings completed has surprised on the upside over the past year, having risen by 10% year-on-year for the 3 months to April. This would seem excessive in such a weak market. Average value per square metre of plans passed rose by a higher 14.4% over the same period. Nevertheless, these inflation rates have begun to decline in recent months, perhaps suggesting a looming move to greater pricing realism.

COMMERCIAL ACTIVITY STILL ON A STEADY WEAKENING TREND

In the area of commercial property, the weakness also continues in response to rising vacancy rates over the past few years. Square metres of office space completed for the 3 months to April dropped year-on-year by -46.8%, industrial space by -34.4%, and retail space by -25%.

Commercial plans passed pointed to more weakness to come, with square metres of office space plans passed falling year-on-year by -28.8%, industrial space by -35.8%, and retail space by -25.3%.

Commercial plans passed pointed to more weakness to come, with square metres of office space plans passed falling year-on-year by -28.8%, industrial space by -35.8%, and retail space by -25.3%.

OUTLOOK

We are of the belief that the residential building sector is set for stabilisation late in 2010, as suggested by a diminishing rate of decline in plans passed. However, this is not expected to be fast enough to prevent further significant decline in completions for 2010 as a whole, projected at -23.4%, with positive growth off a low base only returning in 2011. This expected improvement in

2011 would be the lagged response to the moderate recovery that we have seen over the past year in overall residential demand, which in turn was largely the result of the 2009 interest rate cuts.

We believe that the commercial property sector has a little longer to wait for a return to positive growth territory, with the most recent available commercial property data not yet showing any decline in vacancy rates in this sector.