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Confidence in building drops

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At 29 index points, it’s the lowest since second quarter 2012

This wiped out all the gains of the first quarter, and at 29 index points was the lowest since the second quarter of 2012.

Four of the six sectors registered lower confidence, with hardware and manufacturers of building materials seeing a drop of more than 30 index points.

This building confidence index ranges from 100 to zero. It reveals the percentage of respondents who are satisfied with prevailing business conditions in the six sectors: architects, quantity surveyors, main contractors, sub-contractors including plumbers and electricians, manufacturers of building materials, and hardware retailers.

The confidence of main building contractors fell by four index points to 37 in the second quarter – more or less in line with the growth in building activity which remained largely unchanged.

While FNB property economist John Loos says the news is not all bad, “the mixed results from the building pipeline suggest that if there is any upside potential for the rest of the year, it will be limited”.

He notes an interesting discrepancy in activity between the residential and non-residential sub-sectors. While building work among residential contractors was the same as it was in the first quarter of the year, that of non-residential contractors had “improved nicely”.

“This is the second consecutive improvement in non-residential building activity and points to a reasonably positive first half of the year,” says Loos.

But 2016 and last year had been “dismal” years for the sub-sector, so growth may be exacerbated by base effects.

Loos warns that the factors that typically drive non-residential building investment, such as gross domestic product growth, are not yet in place and it will be prudent to view the improvement in this sector this year with caution.

“There is little macro-economic evidence to suggest that the rise in non-residential building activity this year will be sustained.”

The confidence of hardware retailers saw a 45-point index drop to just two, dragging down the overall building confidence index.

But while sales volume growth in this sector deteriorated noticeably in the quarter, Loos says the fall in sales seemed exaggerated, “given that building activity, especially among main contractors, remained more or less unchanged from the first quarter”.

“This suggests that other factors such as constrained consumer spending or softer demand in the home renovations market may have negatively affected hardware retail sales.”

The other hard-hit sector was manufacturers of building materials, with production volumes significantly lower. Confidence plummeted to 13, from 45 points in the first quarter.

Other sub-sectors produced mixed results:

Confidence of architects was down to 40 from 43 in the first quarter.

Quantity surveyor confidence was unchanged at 31, but quantity surveyors have seen an uptick in activity in the quarter. Loos says: “While these results inspire little confidence with respect to a resurgence in building activity going forward, it doesn’t suggest the sector is entirely in the doldrums either.”

Sub-contractor confidence was stable at 52 index points in the second quarter, despite the deterioration in building activity growth.

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