Building industry confidence on the rise

CONFIDENCE in the building industry increased to it highest level in more than a year in the first quarter of this year, despite weaker activity levels.

The latest FNB/Bureau for Economic Research building confidence index, released yesterday, showed that confidence in the building industry rose three index points on a 100point scale to 43 points in the quarter, from 40 points in the fourth quarter of last year.

It is the third consecutive quarterly improvement in the index. However, the current level of the index still indicates that almost 60 percent of respondents are dissatisfied with prevailing business conditions.

FNB property economist John Loos said although confidence was higher, building activity was broadly lower, especially for main contractors, and overall it was likely that the growth in the building sector weakened in the first quarter.

The confidence of main contractors dropped by six points to 42 index points in the first quarter from the previous quarter.

Loos said the drop in overall confidence was largely due to lower confidence among residential contractors, while non-residential contractor confidence was largely unchanged.

The survey attributed the deterioration in the confidence levels of residential contractors to weaker building activity and keener tendering price competition. Loos said the trend in the residential building sector for the past few quarters had been broadly higher in terms of activity, while that of the non-residential contractors had deteriorated.

Under pressure

“This quarter, it seems that the residential contractor segment is also under pressure. The fortunes of the two sub-sectors, residential and non-residential, follow the pattern seen in the main contractor segment for much of the past few quarters. That is to say, the residential market is outperforming the non-residential market,” he said.

The confidence of non-residential contractors slipped marginally to 36 index points from 37 points in the fourth quarter of last year. However, Loos said this was not supported by the underlying indicators.

“Building activity and overall profitability fell sharply and are at their worst levels since early to mid-2011. This suggests that the sector is in deep distress and that confidence should have been much lower,” he said. Three of the six sub-sectors surveyed reported higher confidence.

Confidence among building material manufacturers registered the biggest improvement, increasing by 10 index points to 25 points in the first quarter. Domestic and exports sales fared well during the quarter and supported the jump in confidence.

Confidence levels among architects rose to 55 index points during the quarter, but that of quantity surveyors dropped by 3 points to 55 points.

Loos cautioned that whether this translated into higher building activity in subsequent quarters depended on what happened on the broader economic and political front.

Hardware retailers’ business confidence improved by eight index points to 37 points in the first quarter after slipping to 29 index points in the previous quarter. The confidence of subcontractors dropped by one index point to 42 points.