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Building confidence stable at low level

The recovery in the building industry remains extremely hesitant despite confidence in the industry stabilising in the third quarter of this year.

The FNB/Bureau for Economic Research building confidence index released yesterday said building activity levels of main contractors and retail sales of building materials and hardware improved during the third quarter while manufacturing sales and production slowed but remained positive.

However, the report said there were a number of risks, including weak demand and signs of slowing activity at the start of the building supply chain, which could further hamper the pace of the recovery.

The report said the slowdown in activity among architects was a concern despite confidence levels among architects remaining unchanged at 30 index points between the second and third quarters.

It stressed that the stable confidence levels hid the fact that activity had declined across all phases of the architect pipeline during the third quarter, which was usually a fair leading indicator of actual building work to come.

Combined with prevailing weak demand, this again suggested a continuation of the current slow recovery rather than a more robust one, the report said.

The index revealed that confidence in the industry declined marginally by one index point to 26 on a 100-point scale in the third quarter after declining from 34 to 27 during the second quarter.
The current level of the index suggests more than seven out of 10 respondents in different sectors of the building industry rate prevailing business conditions as unsatisfactory. The index can vary between zero and 100, with zero indicating a total lack of confidence and 100 universal confidence.

The report added that unlike surveys in the recent past where one or more sectors would register significant changes in confidence from one quarter to the other, confidence across all the sectors surveyed remained largely stable during the third quarter.

Compared with the second quarter, confidence levels among main building contractors and retailers of building material increased by two index points, while quantity surveyors added one point. Building sub-contractors and manufacturers of building materials declined by three points.
The report said the change in confidence of residential and nonresidential main contractors in the third quarter was far more comparable in contrast to the much bigger divergence earlier this year.

Residential confidence rose from 26 to 28 index points while non-residential confidence inched one index point higher to 20. Overall, main contractor confidence rose from 24 to 26 index points.
However, the report said the underlying activity indices continued to favour the perception of a faster growing or recovering non-residential than residential sector, which was unusual for this stage of the building sector recovery cycle.

Activity levels within the nonresidential sector continued to improve, boosted by increased public sector spending at provincial and municipal level in particular, while the rise in residential activity continued to be more restrained.

This probably mainly reflected the changed credit culture in the country in line with overseas developments, which had made household access to mortgage credit for the middle and upper segments more difficult to obtain, it said.

The report added that despite the uptick in building activity, the demand for new work remained weak with the number of firms concerned about the effect of weak demand for new buildings on their business remaining virtually unchanged at high levels.

FNB's chief economist Cees Bruggemans said that notwithstanding rising activity levels, the weak building demand highlighted the risk that the building recovery might remain subdued for longer.

(Business Report)


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