Cape Town - Building confidence in South Africa has fallen to its lowest level since the first quarter of 2013, according to the latest FNB/BER Building Confidence Index released on Thursday.
The Western Cape, however, fared significantly better than the rest of the country both in terms of building confidence as well as building activity during the quarter.
This is likely due to increasing inward migration to the Western Cape by residents from other provinces, according to John Loos, property economist at FNB.
The index measures the confidence of main contractors. The current level of the index indicates that more than 65% of respondents are dissatisfied with prevailing business conditions. Keener tendering competition along with deterioration in overall profitability during the quarter likely explains the fall in confidence, said Loos.
Although confidence was lower during the quarter, higher activity by residential contractors and increased sales and production by manufacturers of building materials suggests that activity in the sector was in slightly better shape in the second quarter than at the start of the year.
"However, the outlook is marred by a moderation in activity at the start of the building pipeline and persistently poor growth in non-residential building activity. In addition, the weak retail environment suggests that a key support to the sector in 2015 is no longer there," explained Loos.
He expects developments in the broader economy such as higher interest rates, rising household indebtedness and soft domestic demand will also weigh on the building sector.
Residential vs non-residential building confidence
The latest index shows a distinct difference in the performance of the residential and non-residential sectors.
"While the confidence of both residential and non-residential contractors edged lower in the second quarter, residential building activity rebounded nicely. On the other hand, the slowdown in non-residential activity reported in in the first quarter, intensified," explained Loos.
“The difference in performance of residential and non-residential building activity confirms our view that the non-residential market is under significant pressure, while there is still some life in the residential market.”
All of the six sub-sectors of the index surveyed registered lower confidence.
The largest fall in confidence - for the second consecutive quarter - was registered by retail merchants. Loos explained this fall in confidence was due to a sharp deterioration in sales and profitability.
“The marked slowdown in hardware sales seems to point to the end of the DIY boom which has boosted the building - and retail - sector since the latter part of 2014,” said Loos.
At the same time the index shows that building activity was marginally better in the second quarter compared to the first quarter of 2016.
The confidence of manufacturers of building material edged lower, but Loos pointed out underlying data suggests a significant improvement in domestic sales and production in the quarter. As a result of lower activity, the confidence of architects, sub-contractors and quantity surveyors also fell in the second quarter. The confidence level of quantity surveyors was the lowest since the fourth quarter of 2012.
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