Tough times see confidence levels drop to new low points

It has not been the best year

PROPERTY building confidence in South Africa has dropped to its lowest levels in more than five years, with current business conditions in the country to blame.

According to the FNB/BER Building Confidence Index, the level fell to 31 in the fourth quarter (Q4) this year, from 35 in Q3 – the lowest confidence level since Q3 in 2012.

At the current level, the index indicates almost 70% of respondents are dissatisfied with prevailing business conditions, with the confidence of main contractors slipping to 34 in Q4 of 2017, from 44 in Q3.

However, FNB’s property economist John Loos says sentiment between residential and non-residential main LOWLIGHTS:

The FNB/BER Building Confidence Index shed four points to31 in Q4 2017.

Four of the six sub-sectors reported lower confidence in the quarter, led by building material manufacturers. contractors “continues to be starkly different”.

“In fact, this contrast was even more pronounced this quarter,” he says, revealing this level among main contractors in the residential sector declined to 43 in Q4, and to 11 among non-residential main

Despite the fall in confidence, on balance, activity was broadly unchanged compared to Q3 2017, albeit still weak.

The survey suggests further weakness in building activity growth going into 2018, especially in the non-residential sector.

contractors. Furthermore, building activity for non-residential contractors deteriorated while that of residential contractors improved.

“High vacancy rates across non-residential sub-sectors and weak underlying economic activity seem to be taking a toll on the non-residential building sector. In contrast, residential contractors saw activity growth edge higher.”

Loos says after rising by 29 index points in Q3 2017, the confidence of building material manufacturers fell 21 points to 16 in Q4 2017. “A decline in domestic sales and sales orders growth weighed on confidence in the quarter, but from an export perspective the sector fared reasonably well. This reinforces the idea that the domestic building sector remains under pressure.”

Confidence of architects fell to 25 index points while it was 38 points for quantity surveyors, thereby also weighing on overall sentiment in the building sector. In the case of architects, Loos says this marks the lowest confidence since Q1 in 2012. Underlying activity remained poor during the quarter, prompting the lower confidence.

“Last quarter, survey results showed a sharp decline in activity at the start of the building pipeline. This continued into the fourth quarter and bodes ill for the outlook for the building sector, especially the already under-performing non-residential market.”

In contrast, building sub-contractor business confidence gained 10 points to register an index level of 47. The improved sentiment is largely due to increased work among non-residential sub-contractors.

Loos says: “Much of the work is likely coming from additions and alterations rather than new buildings”.

The index revealed hardware retailer confidence rose in the quarter to 28 index points, from 18. However, the majority of respondents are still dissatisfied with prevailing business conditions.

Looking ahead, Loos says: “The subdued prospects for the non- residential market cloud the outlook for the overall building sector. Even if we have some sort of recovery in the general economy, it will take time before it is reflected in new non-residential building activity because the existing oversupply must first be absorbed”.