Building confidence in SA rose back to near a record peak in the second quarter of this year, reflecting a boom spurred by public spending and pent-up demand for affordable housing, an independent survey showed yesterday.

The FNB building confidence index rose to 88 points from 87 in the first quarter of this year, edging back towards a historic high of 89 posted in the fourth quarter of last year.

FNB chief economist Cees Bruggemans said improved confidence in the building industry reflected higher overall economic growth, which quickened to an average annual rate of 5% over the past three years from 3% earlier in the decade.

"We have barely started. It looks like we are in an extended growth cycle which is likely to last another 7-8 years," he said.

Release of the survey coincided with official data yesterday showing that capital spending by the government rose by 25,4% to R71,8bn in the financial year which ended in March, with expenditure on land and buildings soaring by 149% and construction up by 23,1%.

A slowdown in public sector capital expenditure is expected this year, before the pace picks up again in 2008, the figures from Statistics SA showed.

Construction is playing an increasing role in the economy, with the sector expanding a blistering 21,3% in the first quarter of this year a 17-year record.

At the same time, the government's R416bn infrastructure spending drive is having positive spin-offs, although it focuses on ports, roads, railways and soccer stadiums.

The FNB building survey showed that confidence in the nonresidential sector, which covers commercial buildings, was steady at 94 points but fell in the residential sector to 82 points from 86 in the first quarter.

This suggested business conditions there had been hit by the cumulative two percentage point increase in lending rates last year, Bruggemans said.

The Reserve Bank raised its key repo rate by half a percentage point to 9,5% again in June, and many analysts expect another hike at its meeting next month. But the residential slowdown is unlikely to last, the survey carried out by the Bureau for Economic Research showed.

"Regarding the business outlook for the third quarter, residential contractors said they expected business conditions to remain more or less stable, but an improvement in the tempo of building activity is expected," FNB said.

Bruggemans said there was "enormous pent-up demand" for affordable housing units worth R170000-R250000 from the expanding black middle class.

FNB commercial property strategist John Loos said builders in the nonresidential sector were "very optimistic" and "upbeat" about short-term prospects but they also indicated that shortages of skilled labour and inadequate supplies of materials were "seriously constraining" operations.