Lower activity at the start of the building pipeline weighs on Building confidence in Q4
The FNB/BER Building Confidence Index shed 3 index points to register a level of 32 in 4Q2018.
Of the four sub-sectors which reported lower confidence, the sharp increase in pessimism among architects and quantity surveyors was of particular concern. This was underpinned by a marked fall in activity
On the positive side, main contractor building activity saw a marginal improvement, although growth remains very weak.
After rising to 35 in 3Q2018, the FNB/BER Building Confidence Index fell back to 32 in 4Q2018.
The current level of the index indicates that the majority (close to 70 per cent) of respondents are dissatisfied with prevailing business conditions.
During the quarter, four of the six sub-sectors registered lower confidence while building sub-contractors and hardware retailers reported higher confidence.
The confidence of main contractors fell to 32, from 44 in 4Q2018. “Confidence was lower although main contractor building activity improved somewhat relative to 3Q2018” said John Loos, Property Economist at FNB. “That said, it’s not as if work is abundant” added Loos. A clear development over the past two quarters is that the sharp spike in non-residential building activity seen in the first half of the year has fizzled out quite quickly during the second half – albeit that activity was mildly better in 4Q2018 compared to 3Q2018. “The weaker performance of non-residential building activity makes intuitively more economic sense. It corresponds with current economic fundamentals such as the relatively high office and retail vacancy rates as well as slow GDP growth. This also means that we are unlikely to see a recovery over the near term as these factors, especially vacancy rates, tend to be sticky” remarked Loos.
Residential building activity was also slightly up on a quarterly basis, but the survey index measuring annual growth remained deeply negative.
The major disappointment this quarter was the noticeable drop in confidence of architects and quantity surveyors, although confidence for the latter has been trending lower for some time. According to Loos, “growth in activity for both architects and quantity surveyors deteriorated sharply, explaining the lower confidence. However, of greater concern is that this implies that work for main contractors is set to become scarcer over the next few months”. Architect confidence dropped to 26 index points from 47 in 3Q2018 while the confidence of quantity surveyors fell to its joint lowest level (along with 1Q1999) since1986 of 10.
In contrast, the confidence of hardware retailers increased by 19 index points to 41, preventing the composite index from falling further. “This is due to a marked improvement in sales during the quarter and is likely a consumer spending phenomenon rather than an indication that building activity, even informal, is increasing”, remarked Loos.
Building sub-contractor confidence rose by 15 index points to 39 in 4Q2018. Meanwhile, building material manufacturers’ confidence slipped to 43, from 47 in 3Q2018.
In conclusion: The decline in the FNB/BER Building Confidence Index was mainly as a result of increased pessimism among architects and quantity surveyors. This was underpinned by broadly lower activity. According to Loos, “the main conclusion from this quarter’s results is that the outlook for the building sector remains weak”. Furthermore, Loos noted that “this is not entirely new. In the previous survey quantity surveyors already noted the noticeably weaker level of activity”.
“There was some good news in the form of a mild uptick in quarterly activity for main building contractors and better retail hardware sales, but we will have to wait and see if this is sustained,” said Loos.