Thursday, 22 June 2017 12:01

Building confidence registers sharp fall in Q2

Written by
Rate this item
(0 votes)

After reaching its highest level in more than a year of 43 points in 1Q2017, the FNB/BER Building Confidence Index fell sharply to 32 in 2Q2017.


Moreover, all of the sub-subsectors measured registered a drop in confidence. This has only happened in five other instances since the index was first compiled in 1997.

“The broad-based nature of the decline in confidence suggests that the sector is facing increasing pressure from a number of different fronts”, said John Loos, Property economist at FNB. 

The current level of the index indicates that close to seventy per cent of respondents are dissatisfied with prevailing business conditions. 

The biggest fall was reported by hardware retailers where confidence shed 24 index points to 13. This is the joint lowest level since 2Q2012. Continued low sales, coupled with rising input costs, weighed significantly on profitability in the quarter. This helps explain the fall in confidence. According to Loos, “the woes in the hardware sector is consistent with the broader retail environment which is suffering amid constrained consumer spending”. 

The confidence of manufacturers of building materials also deteriorated to a multi-year low of 8 index points, from 25 in 1Q2017. The lower confidence was due to a marked decline in domestic production and sales.

The confidence of main building contractors declined to 36 index points, from 42 in 1Q2017. However, the overall confidence of main contractors hides the developments within the two segments, namely residential and non-residential. While the confidence of both residential and non-residential contractors fell in 2Q2017, at 41, residential contractor confidence is only marginally below its long-term average of 43. In contrast, non-residential contractor confidence fell to 25.

“The divergent performance of the residential and non-residential segments is even more pronounced when looking at activity levels”, noted Loos. Residential contractors reported a slight uptick in activity compared to 1Q2017. However, non-residential contractor activity, remained very depressed. Loos stated that, “Official data showed that residential investment was surprisingly robust in 1Q2017 and these survey results suggest that there is indeed some activity. Non-residential investment on the other hand has been contracting since 3Q2016 with no respite in 2017Q2.

In fact, most of the evidence suggests that non-residential building activity is likely to worsen further before improving”. 

The business confidence of building sub-contractors shed four points to 38 in 2Q2017. Underpinning the fall in confidence was a deterioration in building activity as well as a sharp drop in overall profitability. 

After showing some promise in 1Q2017, activity at the start of the building pipeline slowed. Both architects and quantity surveyors were more pessimistic regarding activity in 2Q2017. As a result, confidence was lower, 49% and 46% respectively stated that business conditions were satisfactory, down from 55% in 2017Q1. 

In conclusion: Non-residential building activity fared poorly in 1Q2017 with activity expected to remain under significant pressure in 2Q2017. In contrast, residential activity is predicted to improve somewhat, but unlikely by enough to offset the weaker non-residential market. The prospects for the other building related sectors are also downbeat. Softer consumer demand is expected to weigh on the fortunes of hardware retailers. This, along with the underperforming non-residential sector, will in turn sour the performance of building material manufacturers.

“In all, the results are reasonably consistent in that they point towards a further contraction in the building sector in 2Q2017”, said Loos. 

Last modified on Thursday, 22 June 2017 14:50

Most Popular

How smart corporates are maximising returns by consolidating their property footprint

Sep 01, 2017
For businesses that are seeking to be more efficient and productive, consolidating…

JSE listed Rebosis Property Fund announces R917 million B-BBEE transaction

Sep 01, 2017
Andile Mazwai COO Rebosis
Rebosis Property Fund, the JSE’s first listed black-managed and significantly black owned…

The Property Practitioners Bill set to transform the entire property market

Sep 19, 2017
Storme Heath CAF2
Gazetted in March 2017 for comment, the long-awaited Property Practitioners Bill is…

Growthpoint Properties posts forecast-beating distribution growth and achieves key strategic successes

Aug 31, 2017
Growthpoint Norbert Sasse
Growthpoint Properties today posted distribution growth of 6.9% per share for its…

Energy saving technologies will help consumers prepare for massive electricity price hikes in 2018

Sep 06, 2017
Cala van der Westhuizen
The latest ruling by the Constitutional Court, allowing Eskom to retrospectively ask the…