Bheki Mpofu
29 September 2008
Johannesburg — THE downturn in the residential construction sector has claimed the construction division of the MKB Group of companies, which has closed down the division after it operated at a loss for the past 10 months.
MD Andrew Botha said the group had decided to shut down its loss-making construction company, MKB Properties, which had been maintained during that time by significant capital injection from other profitable companies in the group.
He said the construction business had become a liability in a difficult market for several reasons, including irregularities in middle management, changes to the National Credit Act, the downturn in the residential property sector, reduced work flow from lower demand and an overall increase in construction and overhead costs.
Activity in the middle to top end of the residential construction market has experienced a decline in the past two years, hit by a combination of high interest rates, the National Credit Act, as well as a general slowdown in the economy.
The slowdown has put a number of companies operating in this market under strain while others have diversified into the buoyant infrastructure development sector to survive.
"We had been experiencing downturns in our construction operations and volumes have decreased significantly, which has impacted on our bottom line. We also uncovered massive fraud by our staff in the business, which did not help the bleeding in the company," Botha said. A criminal investigation had been instituted.
About 250 skilled and unskilled staff would lose their jobs as a result of MKB Properties' closure , Botha said. This would bring the number of jobs that had been lost in the construction division over the past few years to about 700.
Botha said the company had outsourced all current and future construction requirements to "well-respected industry professionals".
He said , however, that MKB Properties had no financial liability to any banks and the other group operations had funded the completion of all outstanding projects.
MKB Properties had been involved largely in the luxury residential market as well as "light commercial property development", he said.
The unlisted, privately owned MKB Group has been involved in the creation of some of the most dynamic homes and lifestyles in SA.
Jonathan Molyneux-Killik, a director of the MKB Group, said management was saddened by the loss of so many skilled workers but they had to take into consideration the overall effect of continuing to carry the liabilities of the construction division on the shareholders and other companies in the group.
Botha said the remainder of the companies in the group - MKB Property Developments, MKB Design and MKB Tactical and Security - would continue to operate as usual.
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