Glimmer of confidence for builders

Industry much more upbeat, survey shows

CONFIDENCE in the building industry improved in the fourth quarter to its highest level in the past 12 months.

However, the FNB/Bureau for Economic Research building confidence index released yesterday revealed that confidence improved by only two index points to 40 on a 100-point scale in the fourth quarter, showing that 60 percent of respondents to the confidence index survey were dissatisfied with prevailing business conditions.

Four of the six sub-sectors reported higher confidence, with confidence only lower in the retailers and manufacturers of building material sub-sectors.

John Loos, a household and property sector strategist at FNB, said this signalled that there was a relatively broadbased improvement in the building sector. Led by residential main contractors, building activity improved somewhat after moving sideways for much of this year, he said.

Loos said the rise in quantity surveyor activity and improved domestic demand for hardware added to the growth in the sector. However, he said continued pressure on non-residential building activity and profitability in certain sub-sectors prevented the confidence index from improving more meaningfully and the outlook remained uncertain.

“While these results are encouraging, weakness in the broader macro-economic, especially the consumer environment, could hamper further improvement in the sector over the short to medium term,” Loos said.

He said other encouraging trends also emerged in the fourth quarter, including an improvement in employment in the sector.

“Higher employment usually only occurs when a sustained improvement in the sector is anticipated, not merely for once-off spikes in activity.

“In addition to the rise in residential activity, the higher domestic sales growth for manufacturers and retailers suggests an improvement in domestic demand, albeit that it remains weak,” he said.

The non-residential sector continued to struggle with weak growth in building activity

The confidence of both non-residential and residential main contractors rose in the four quarter.

Loos said although both segments registered higher confidence, the underlying performance of the residential market remained noticeably better than that of the non-residential market.

He said the non-residential sector continued to struggle with weak growth in building activity and deteriorating profitability while residential main contractors reported an improvement in building activity in the four quarter compared to the previous quarter and an improvement in profitability.

“The improvement in residential building activity is welcomed, especially given how poorly this segment has performed for much of this year relative to 2015,” he said.

Loos added that a further uptick in activity at the start of the building pipeline was adding to the improved optimism in the sector.

The confidence of architects increased by six index point to 49 points and that of quantity surveyors by eight index points to 58.

Loos said the continued improvement in especially quantity surveyor activity was encouraging, particularly as an indicator of future building activity. However, the activity levels of architects were largely unchanged from the third quarter.

Confidence among of building material manufacturers deteriorated 11 index points to 10, the lowest level since the second quarter of 2014.

Loos said profitability came under pressure during the quarter, with purchase prices continuing to rise while manufacturers dramatically cut their own domestic selling prices.

“On the upside, the lower domestic selling prices helped boost domestic sales,” he said.

The confidence of hardware retailers slipped two index points to 29 in the fourth quarter, which is the lowest confidence level reached since the third quarter of 2012. Loos said confidence declined despite higher sales as a slow rise in selling prices weighed on profitability.

Confidence among sub-contractors improved by three index points to 43.