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Building confidence rising – FNB/BER

The FNB/BER building confidence index rose by four index points to a new four-year high of 41 in the second quarter this year.

The index is up from 37 index points in the first quarter.

According to the latest report, issued on Wednesday, this marks the highest reading of the index since 2008 and the first time since 2005 that the index has risen for three consecutive quarters.

However, the current level indicates that the majority (approximately 6 out of 10) of respondents in different sectors of the building industry still rate the prevailing business conditions as unsatisfactory.

Moreover, the rise in confidence across the different phases of the building sector indicates that the recovery is becoming more broad-based and therefore likely to be more sustained.

The confidence among main contractors jumped from 30 index points to 45. This marks the single biggest increase in the index since 2008 and places the current reading well above the long-term average of 36.

Building activity increased notably in the second quarter, contributing substantially to the jump in main contractor confidence.

This is in contrast to the first quarter when building activity also picked up nicely, but confidence remained flat.

The residential sector fared marginally better than the non-residential sector during the second quarter.

Although both sub-sectors saw higher confidence and an increase in building activity, the improvement was more pronounced for residential contractors.

“There are tentative signs that the recovery in the residential building sector may be more robust than previously thought,said Sizwe Nxedlana, FNB’s chief economist.

“However, it must be noted that this recovery comes off a very low base.”

Conversely, profit and tendering conditions in the non-residential sector were slightly more favourable than for residential contractors.

The rise in the building activity of main contractors led to an increase in the demand for building materials.

According to building manufacturers domestic sales and production picked up substantially during the second quarter.

This helped push their confidence to 27 index points, from 21 in the first quarter.

In contrast, the growth in retail sales of building materials slowed somewhat during the quarter.

This is likely due to this segment’s exposure to the struggling South African consumer and, in part, explains the fall in confidence of retailers of building materials from 59 to 46 points.

The building pipeline also continued to improve.

Architects’ confidence rose to 46 index points, while the confidence of quantity surveyors edged up by 4 points to 39.

Work, especially at the start of the building pipeline, increased significantly.

“The rise in architect and quantity surveyor confidence and activity, combined with the increase in general building activity provide reason to believe that the recovery in the building sector may be well supported going forward,” said Nxedlana.

The confidence of sub-contractors remained flat at 41 index points in the second quarter.

According to the latest report the results suggest that the pace of the building recovery likely quickened during the quarter, although off a low base.

However, there are still risks to the continued recovery in the sector.

Most of the risk stems from weak domestic and international economic conditions, which could thwart further growth in the building sector just as it starts gaining momentum.


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