Thursday, 23 March 2017 09:27

Despite weaker activity, building confidence edges higher in Q1

Written by
Rate this item
(1 Vote)

The FNB/BER Building Confidence Index improved for the third consecutive quarter, rising by 3 points to 43 in 1Q2017.

John_LoosFNB

This marks the highest confidence in more than a year. However, even though confidence improved, the current level of the index indicates that the majority (close to sixty per cent) of respondents are dissatisfied with prevailing business conditions. 

The confidence of main contractors recorded a level of 42 index points in 1Q2017, 6 points lower than in 4Q2016. The drop in overall confidence was largely due to lower confidence among residential contractors while non residential contractor confidence was largely unchanged. 

According to the survey, the fall in residential contractor confidence was on the back of weaker building activity and keener tendering price competition. “For the past few quarters the trend in the residential building sector has been broadly up in terms of activity, while that of the non-residential contractors has deteriorated. This quarter, it seems that the residential contractor segment is also under pressure”, noted John Loos, Property Economist at FNB.

Although the confidence of non-residential contractors remained largely unchanged, (36 index points in 1Q2017, from 37 in 4Q2016) this was not supported by the underlying indicators. “Building activity and overall profitability fell sharply and are at their worst levels since early/mid–2011. 

This suggests that the sector is in deep distress and that confidence should have been much lower”, added Loos. 

Building material manufacturer confidence registered the biggest jump, from 10 to 25 index points in 1Q2017. “Domestic and exports sales fared well during the quarter and the jump in confidence is supported. However, looking at the rest of the building sector, it is difficult to pinpoint where these goods are being used”, stated Loos. 

Architect business confidence rose to 55 index points during the quarter. The confidence of quantity surveyors, on the other hand, shed 3 index points to also register a level of 55. “Activity at the start of the building pipeline remains 
reasonably robust, so it is understandable that the confidence of architects and quantity surveyors is above 50. However, this may not necessarily translate into actual building work going forward”, stated Loos. 

After slipping to 29 index points in 4Q2016, the business confidence of hardware retailers regained 8 points to register a level of 37 in 1Q2017. 
According to Loos “Confidence was higher despite a sharp slowdown in sales and profitability during the quarter, reflecting the broader weakness in consumer spending”. Sub-contractor confidence shed 1 index point to register a level of 42. 

According to Loos, “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”. 

In conclusion: For much of 2016 the survey suggested that the residential sector experienced moderate growth while the non-residential sector contracted. This quarter, the results point to a deterioration in the fortunes of residential contractors and a deepening in the woes of non-residential building activity. Overall, after posting mild growth last quarter, output in the total building sector likely contracted. 

In contrast, the continued activity at the start of the building pipeline, especially of architects, is cause for optimism. However, whether or not this translates into higher building activity in subsequent quarters depends on what happens on the broader economic and political front. “Projects may be passed, but economic and political uncertainty may cause firms and individuals to hold back on investing”, remarked Loos. 

Last modified on Thursday, 23 March 2017 09:51

Most Popular

Redefine Properties sells Delta stake to women-led BEE consortium

Jul 04, 2017
Phumzile Langeni
JSE-listed diversified real estate investment trust Redefine Properties has sold its…

Vukile acquires R2,8bn Spanish retail portfolio, boosting its offshore exposure to 21%

Jul 04, 2017
Parque Oeste -Alcorcon
Vukile Property Fund announced its trailblazing acquisition of a portfolio of nine…

Bridge City's bold affordable housing vision becomes reality

Jul 04, 2017
Bridge City Affordable Housing
Construction of a landmark affordable housing project at Bridge City is due to start…

Substantial development for Salt River's Brickfield Road

Jun 27, 2017
13 Brickfield
Pockets of Salt River, once a booming part of Cape Town due to its proximity to the CBD,…

Dairybelle properties sold to Giant Sweets for R66 million

Jun 29, 2017
Dairy Belle CT Aerial
Following the liquidation order of Dairybelle, two Epping properties belonging to the…