Building Confidence Index lower in second quarter of 2015

© Wittaya Puangkingkaew – 123RF.com

Even though confidence was lower, the current level indicates that more than half of the respondents are satisfied with prevailing business conditions.

The biggest fall in confidence was registered by retailers of building materials. Confidence was at 91 in the first quarter of 2015; in the second quarter of 2015 it fell to 66 index points. Confidence was lower despite robust growth in sales and profitability.

"Retailers of building materials have been the best performing of the sub-segments of the building sector for more than a year, and, despite the fall in confidence, should continue to perform well this quarter," said John Loos, FNB's property economist.

Main contractors

After dropping by 17 index points in the first quarter of 2015, the confidence of main contractors shed only one point to register a level of 48 in the second quarter of 2015. The volume of building activity for both residential and non-residential contractors was weaker during the quarter, weighing on confidence.

"The results, particularly of residential main contractors, were disappointing. After ending 2014 on a relatively strong note, it is now clear that the recovery in the housing market has stalled somewhat," remarked Loos. As a result of the weaker building activity, profitability was noticeably down. Similarly, the business confidence of building sub-contractors was down one index point to 51.

Confidence among building material manufacturers rose by 13 index points to 47. The rise in confidence was largely due to an improvement in domestic sales and production. Export sales in contrast, were much weaker. According to Loos the manufacturing sector in general is facing tough trading conditions and hardware manufacturers are no different. So, although confidence is up this quarter, it may not be sustained.

Positive news

On a more positive note, activity at the start of the building pipeline is gaining momentum. The volume of work of both architects and quantity surveyors was markedly higher in the second quarter of 2015. "This should bode well for the rest of the building sector towards the end of the year and 2016," said Loos. "However, it is not to say that the rise in building planning activity will automatically translate into building construction as there are a number of potential stumbling blocks in between." The higher activity resulted in a rise in architect confidence to 62 index points. Quantity surveyor confidence, however, fell by 13 index points to 44.

After slowing in the first quarter of 2015, growth in the building sector lost further momentum in the second quarter of 2015. Main contractor activity, both residential and non-residential, continued to deteriorate during the quarter. This resulted in lower profitability. In contrast, hardware retail sales remained well supported, suggesting continued informal sector activity.

Looking ahead, the noticeable improvement in the volume of work by architects and quantity surveyors, but particularly architects, should see building construction regain some ground towards the latter part of this year.