Building confidence at 20-year low

    The FNB/BER Building Confidence Index fell to a multi-year low of 22 in 3Q2019, from 29 in 2Q2019.

    The current level of the index indicates that close to 80 per cent of respondents are dissatisfied with prevailing business conditions.

    Five of the six sub-sectors surveyed reported lower confidence, led by a 22- index-point drop in building sub-contractor confidence. In contrast, building material manufacturer confidence increased to 39 (from 22 in 2Q2019).

    Main contractor confidence declined by 7 index points, returning the index to the level recorded in 1Q2019 of 23. Underpinning the lower confidence was a further deterioration in building activity, which also weighed on profitability. The weaker activity this quarter was largely due to a marked decline in residential building work. Non-residential activity growth was unchanged from 2Q2019.

    “This quarter’s survey results are quite worrying as it suggests a further contraction in the building sector in 3Q2019. According to Stats SA, the real value of investment in residential buildings has declined on an annual basis since 3Q2018. Non-residential investment has been falling for almost three years,” remarked Siphamandla Mkhwanazi, Property economist at FNB.

    The softer building demand was also reflected in lower production volumes of building material manufacturers. The impact of lower production on confidence – which gained 17 index points to 39 – was offset by a noticeably slower rise in production costs in the quarter. In contrast, despite a marginal improvement in sales growth, hardware retailer confidence fell to 11 in 3Q2019, from 24 in 2Q2019.

    “It’s not unusual to see hardware retail sales fare better when new building demand is weak as other options such as alterations and renovations become relatively more feasible, particularly DIY” Siphamandla Mkhwanazi

    Over the previous two quarters, the building pipeline was cause for some optimism. Especially among architects, activity started to improve. Indeed, excluding the 1Q2019 results, architect activity had been improving since the end of 2018. This has stalled in 3Q2019.

    “It would have been heartening to see a further improvement in activity at the start of the building value chain, as a precursor to better activity among building contractors. However, existing fundamentals such as poor economic, household and rental income growth and high vacancy rates, to mention a few, are not supportive of an improvement in the building sector,” said Mkhwanazi.

    Consequently, architect confidence fell to 21 while that of quantity surveyors remained depressed at 15 (from 16 previously).

    Sub-contractor building confidence was also back down to its 1Q2019 level of 21.

    Looking beyond 3Q2019, the outlook remains downbeat with an increasing number of contractors stating that the lack of new building demand is a severe constraint on their business.

    In conclusion: The FNB/BER Building Confidence Index declined to 22 points in 3Q2019, a two-decade low.

    “The low level of confidence in the building sector is easily explained by a further deterioration in building activity and points to a continued decline in building investment in 3Q2019. In addition, the results suggest that any recovery in the sector is unlikely over the near term,” stated Mkhwanazi

    Source: www.thhp.co.za
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