Posted by: Martin | April 10, 2010

Fundamentals of the property market: Construction

Regarding construction, or the supply side of the property market, I can’t really say I have any special knowledge, so I’ll stick with publicly available sources, but one can find plenty of interesting stuff out there.

One such example is the 29 March – 5 April issue of the Ivorian magazine Journal de l’Economie (h/t John James) that has an article entitled “Business du Batiment: Un Succes qui derange”. (I’m assuming here that readers who are interested in this can read French – let me know if I’m wrong!)

“Le domaine de batiment est l’un des secteurs d’activite qui a connu un essor spectaculaire durant la crise ivoirienne

Avec ses 3% de contribution au Produit Brut Interieur (PIB) ivoirien et de besoins en logement sans cesse croissants (plus de 50,000 demandes) le secteur du Batiment et du Travaux Publics draine dans son sillage un nombre si important qu’heteroclite d’acteurs. Si la demande atteint les cimes, l’offre elle, va decroissante passant de 8,000 a 4,000 logement par an. […]”

While interesting, I have quite a few remarks about these first few lines of the article. First of all, where do the numbers come from? I have seen a figure of 4.4% for the size of the Construction sector as part of GDP in the World Bank Doing Business report. -It could be that the World Bank definition of Construction isnt exactly matching “Batiment et Travaux Publics” above, but my guess is that the margin of error for economic figures relating to the Ivory Coast is pretty large, (and rarely recongised).

Then we have the “50,000 demandes”, where it seems to be a bit of a mystery what they are or how they are measured. I agree that the need for housing is increasing all the time, but need only turns into demand when people have the means to actually buy what they need.

The article says that the supply has decreased from 8,000 to 4,000 “logements” per year, but if that’s the case it would be difficult to say that “le domaine de batiment est l’un des secteurs d’activite qui a connu un essor spectaculaire“.  To have an essor spectaculaire I’d say both demand and supply need to increase substantially, and that’s what I think has happened in the Ivory Coast over the last 6-7 years.

In the latest African Economic Outlook report for the Ivory Coast I found a text more in line with an essor spectaculaire:

Real growth in construction was very strong in 2008 (9.3 per cent), as in 2007 (9.8 per cent), owing in particular to the resumption of housing construction under the stimulus of strong demand, especially in Abidjan. From 2002 to 2008, real value added in the construction sector rose by almost 133 per cent, despite the crisis

And at Wolfram Alpha – unclear what the underlying source is – there is this graph of value added in the Ivorian construction sector:

Assuming that these figures are reasonably correct, I would really like to see a breakdown of the new construction that has taken place: Where has it occurred? What was built (residential/commercial/other)? Who built it? (big construction companies/small investors)?

There’s got to be a few people at the United Nations/World Bank/IMF or at the Ivorian Ministry of Construction Urbanism and Habitat that have tried to compile numbers for the construction and should be able to  give good estimates to the questions above.

What the big construction companies such as BATIM, SIPIM, Sicogi  etc, are buildling should be relatively public.  For small  builders in the informal sector, however, it’s more difficult. Even if they don’t pay any taxes, the land should be in the land registry, but not necessarily with any information of construction. The question is how big part of the construction is in the informal sector and how accurately one can estimate its size.

The Journal de l’Economie article says that while activity has calmed down a bit among big construction companies and government building works, individuals and small enterprise are getting more active. Maybe wisely, no figures are provided.

Conclusion

I have heard and read on several occasions that demand for property in the Ivory Coast is far greater than the supply, but now after reading what I could find on the topic, I’m starting to doubt that this is the case. It could be that the perception of demand outstripping supply comes from confusing need with demand and, on top of that, an underestimation of the informal sector. This doesn’t mean that property in the Ivory Coast is a bad investment though, on the contrary, my conclusion from this series of posts is that it is a good investment if things don’t get much better in the Ivory Coast, and a great investment if the economy continues to improve, and especially if tourism resumes.


Responses

  1. […] first paragraph is pretty in line with the growth on the supply side as described in the Construction post. Wonder why they expect it to go down in 2010 […]

  2. […] new construction takes place in Abidjan, where, by whom and what’s its value? As discussed in Fundamentals of the property market: Construction this question should be answerable. There’s got to be a few people at the United Nations/World […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: