Systematic risk management of construction projects in the South African residential property sector

Neo Frank  Tsemane

Globally, the residential property market is a growing market which was last estimated at $31000 billion. It is most prominent in, so called, first world countries which are based in North America and Europe. Parts of Asia also indicate vast growth over the years, with the residential property market impacting the GDP of some countries as much as between 41% and 56%. Factors that influence this growth are population growth, investment opportunities, and wealth preservation. In Africa, there is a clear need to grow the residential property market as GDP contributions (aside from South Africa, Namibia and North Africa) are less than 5%. Factors that influence the stagnation in Africa are risk averse financing models, political uncertainty, and economic policy uncertainty. In South Africa the residential property market is made up to three segments, affordable housing, middle housing and luxury housing. These segments made up approximately R5.96 trillion in June 2021. The high collated value of residential properties in South Africa means that the residential property market is a significant contributor to the country’s GDP. Despite its economic significance, the South African residential property market faces risks, at project level, that are not effectively managed. The lack of effective risk management in residential property development projects contributes largely to reduced funding and reduced construction output. This has dire socioeconomic effects such as reduced employment opportunities, and a reduced ability for South Africa to meet housing demands. Considering this, it is important to account and manage the risks that pose a threat to the success of residential property projects in South Africa. These risks typically include political uncertainty, economic policy uncertainty, financing models, and construction phase risks. It is the construction phase risks that this minor dissertation sort to analyse. The objective of this minor dissertation was to determine the top five most prominent risks associated with residential property construction projects, the impact of these risks when not effectively managed, and to decipher the risk management techniques that can be deployed to manage these risks effectively. Specifically, the questions posed in conducting the research study are: V 1. What are the top five most prevalent risks associated with residential property construction projects? 2. How do the top five most prevalent risks associated with residential property construction projects impact the outcome of the project if not effectively managed? 3. How can risks, that are most prevalent in residential property construction projects be effectively managed? The research approach taken is a qualitative research approach, rooted in the positivist paradigm. The researcher, based on his own project experience and existing literature, had an idea of the risks that are encountered in construction, as well as the methods that have been employed to manage these risks. Through a literature review and survey questionnaire, the researcher could confirm his experience-based hypothesis. Through the Pearson Product Moment, utilizing the Statistical Package for Social Sciences’ (SPSS) Statics Processor and Cronbach’s Alpha, the researcher was able to confirm the validity and reliability, respectively, of the research results. Twenty respondents from a total of a forty purposively selected respondents completed the questionnaire. Fortunately, the respondents, minimal as may be, countered the bias of academic and non-academic opinions. This was made evident by the respondent’s professional experience, which ranged from three years to forty years of working experience. Furthermore, the residential development (Resdev) experience ranged from zero years to twenty years. This ensured a good mix of purely academic responses, and responses derived from both academia and experience. The literature review produced a list of several risks related to residential property construction projects. This list includes the top five most prominent residential property construction risks, as documented in the survey study. The top five most prominent residential property construction risks are cost overrun, time overrun, socio-economic issues, quality issues and change of scope, all of which were found to have an adverse effect on constructions projects if not effectively managed. To manage the risks, the research identified risk anticipation and implementation of necessary contingencies as the most effective risk management technique. This technique can be deployed to suite, depending on the analysis findings of the particular risk.

Systematic risk management of construction projects in the South African residential property sector

(1)