Building confidence lowest in three years

Confidence in the building industry has plunged to its lowest level since the beginning of 2013.

Johannesburg - Confidence in the building industry has plunged to its lowest level since the beginning of 2013.

The latest First National Bank (FNB)/Bureau for Economic Research (BER) building confidence index released yesterday showed that the index dropped 9 points on a 100-point scale to a level of 39 in the first quarter of this year from 48 in the fourth quarter of last year.

The current level of the index indicates that more than 60 percent of respondents are dissatisfied with prevailing business conditions.

FNB/BER said the deterioration in confidence was broad-based, with all but one of the six subsectors surveyed reporting lower confidence.

Only the main contractors’ subsector showed an improvement in confidence, with the index for this subsector rising to 43 points from 39 in the fourth quarter of last year.

John Loos, a property economist at FNB, said the overall profitability and level of competition among main contractors remained largely unchanged in the first quarter, compared with the previous quarter, which might have supported confidence.

Loos added that the improvement in confidence of main contractors in the first quarter betrayed the much weaker building activity recorded during the quarter.

He said this was particularly true of residential building activity, which slowed noticeably following a strong showing towards the end of last year, while non-residential contractor activity remained very weak.

Loos said activity in the residential building sector had deteriorated noticeably in the first quarter of this year after recovering slightly during the second half of last year.

This, together with the continued weakness in non-residential activity, meant the overall building sector had started the year on the back foot, while support for the industry from the informal sector had also started to wane, he said.

“The building sector is likely to remain under pressure. Not only is activity at the start of the building pipeline weaker, but broader macroeconomic factors, such as constrained economic growth and rising interest rates, will also weigh on the fortunes of the sector,” he said.

Confidence among architects declined by 12 points, while that of quantity surveyors dropped by 10 points, with both subsectors ending at 43 points in the first quarter.

The biggest decline in confidence in the first quarter was registered by retailers of building material, whose confidence dropped to 39 points in the first quarter and to the levels reported in the third quarter of last year from 61 in the previous quarter.

The decline in confidence was underpinned by a sharp deterioration in sales and profitability during the quarter.

Loos said the survey results over the past few quarters suggested that growth in the retail hardware sector was losing momentum.

“Hardware retailer confidence and sales, a decent proxy for the informal building sector, fared well during 2013, 2014 and the first half of 2015.

“This helped boost overall building activity when the formal building sector was under pressure,” he said.

The confidence of manufacturers of building material declined to 20 points in the first quarter from 31 in the previous quarter.

Loos said this reflected the weaker sales by building retailers and the slowdown in main contractor activity.

However, Loos said building material manufacturers were reasonably upbeat about prospects for sales and production during the second quarter.

The confidence of subcontractors dropped to 43 index points in the first quarter from 51 in the previous quarter.

BUSINESS REPORT